Sunday, October 5, 2008
B2 or not B2?
Overnight Fortis Belgium has agrred to be taken over by Bank BNP Paribas! Fortis could not fully comply with Basel II reserve capital and economic capital requirements on the basis of its risk-adjusted accounts. Question marks remained about major gaps in the figures, gaps that were filled with not just fair value estimates, but gap estimates for missing numbers! Fortis, one of Europe's major banks, a "too big to fail" bank whose liabilities exceeded the GDP of the Benelux countries, was forced to sell 49% of its Belgian, Dutch and Luxembourg businesses to the three respective governments. That seemed to be safe harbour, great news, bank saved. Then within days, if not hours, all of Fortis Netherlands (plus its share of ABN AMRO) including its original insurance business in the Netherlands is taken over 100% by the DNB (Dutch Central Bank and regulating supervisor)! What this means is that Fortis, whose branches are on every commercial street of Belgium and Holland, a bell-weather of the economies, politically economically key even to the great division betrween Flemish and Walloons threatening the political integrity of Belgium, can no longer do business with the Netherlands in the Netherlands; banking license cancelled; Fortis no longer on the authorised banking list! This is the first and perhaps most dramatic example of what happens when a bank cannot meet its requirements under the law (Basel II is the law); it becomes an ex-bank!