Fortis shareholders retreat with honour

April 29, 2009

REUTERS— Margaret Doyle is a Reuters columnist. The opinions expressed are her own —

Revolting shareholders were reduced to throwing shoes and coins at the chairman at Tuesday’s meeting to approve the carve-up of the failed Benelux bancassurer, but to no avail.

It looked like throwing good money after bad.

A majority of shareholders still backed the deal, rightly recognising that it represented the best hope for their beaten-down shares. By going to the law over the nationalisation of the Benelux banks and the sale of the Belgian bank to BNP Paribas <BNPP.PA> last October, the shareholders won some baubles for the rump Fortis Holding company <FOR.BR>.

It held onto the Belgian insurer as well as a ragbag of foreign insurers. The group’s exposure to Fortis’s old structured credit portfolio was also reduced, and its cash increased, from 1.3 billion euros to 3.4 billion euros.

But Ping An, the Chinese insurer that holds almost 5 percent of Fortis Holding, and thousands of private shareholders, were not satisfied. The rebels hoped to reverse Fortis Bank’s nationalisation.

Shareholders’ anger with previous management is understandable: the shares are trading at under 10 percent of their peak. However shareholders should count their blessings at having salvaged anything from the wreckage. They are not the only bank shareholders who thought they were buying the financial equivalent of government bonds only to find they had bought into a casino.

Moreover, there were no more goodies on the table. The Belgian government made it clear that, even if the sale of Fortis Bank to BNP were blocked by shareholders, it would not hand the bank back.Moreover, shareholders would have also lost out on some 4 billion euros of funding for 11 billion of dodgy structured assets from Fortis’s delusions of grandeur.

Even if the Belgian government had been willing to hand back Fortis Bank, it’s hard to imagine that shareholders could have afforded the capital injection required: Fortis Holding’s entire market capitalisation is around 4.5 billion euros, a fraction of what the government has already injected.

Like in casinos, there comes a time when you have to choose to hold or quit. Shareholders were right to quit before they lost the lot.

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