European regulators move to rescue 2 struggling lenders

Belgian Prime Minister Yves Leterme, right, and Dutch Finance Minister Wouter Bos after a news conference in Brussels yesterday on the Fortis financial group bailout. (YVES HERMAN/REUTERS)

LONDON - Just days after the US government brokered the sale of the nation's largest failed savings and loan, Washington Mutual, regulators in Britain and Belgium swooped in this weekend to engineer emergency rescues of two leading European banks with heavy exposure to soured mortgages.

The Dutch-Belgian bank and insurance giant Fortis NV was given a $16.4 billion lifeline to avert insolvency as part of a wider bailout plan agreed to by Belgium, the Netherlands and Luxembourg, officials said yesterday.

Belgium's prime minister, Yves Leterme, said the bailout shows account holders and investors that Fortis will not be allowed to fall victim to the global credit crisis.

Leterme announced the deal after weekend talks between the three countries and European Union and national banking officials.

The deal will force the bank - which has headquarters in both Brussels and the Dutch city of Utrecht - to sell its stake in Dutch bank ABN Amro, which it partially took over last year. Fortis paid 24 billion euros for its share of ABN.

Fortis's chairman, Maurice Lippens, will be forced to resign and will be replaced by a candidate from outside the company, Leterme said.

Under the bailout, Belgium will invest $6.88 billion and the Netherlands $5.86 billion in Fortis's banking operations in the two countries.

In return, they each receive 49 percent ownership in those national arms of the bank.

Luxembourg will invest $3.6 billion in the bank's Luxembourg operations, also for a 49 percent stake.

The deal, orchestrated by the three neighboring countries and EU Central Bank chief Jean-Claude Trichet, is meant to restore confidence in the bank before the reopening of markets after a tumultuous week in which Fortis's shares imploded.

Less than 200 miles away, British regulators were preparing to seize the troubled mortgage lender Bradford & Bingley after no private buyers emerged.

The government held marathon meetings over the weekend to try to broker a deal to sell assets to various bidders or sell the bank to a rival, much as the Federal Deposit Insurance Corp. did when it took over Washington Mutual and immediately sold it to JPMorgan Chase on Thursday.

The collapse of several European banks, and the problems in the property and mortgage markets, have raised questions about whether Europe should come up with a shadow version of the bailout agreed to yesterday by American lawmakers of the hobbled financial system.

Europe and Japan rejected such a notion last week, although some economists say Europe may eventually be forced to take sweeping action.

In Britain, Bradford's demise is expected to heighten pressure on the government of Prime Minister Gordon Brown to step in with its own plan to buy sickly mortgage securities from financial institutions, although Brown had said Britain would not pursue such a program.

The expected seizure of Bradford, which specialized in loans that made it easy for landlords to flip houses as the now-teetering British housing market soared, came after months in which the share price eroded on fears it would be the next victim of the spectacular downturn in the British housing market.

Material from the New York Time News Service and the Associated Press was used in this report.