Dutch give ABN Amro billions in new bailout

/ Source: The Associated Press

The Dutch government Thursday announced a new $6.5 billion (euro4.4 billion) bailout package for nationalized bank ABN Amro, intended to help the bank restructure and return to a strong financial position ahead of an eventual sale or return to the stock market.

Finance Minister Wouter Bos said the money is needed to pay for combining the banking operations of the old ABN Amro and Fortis Bank in the Netherlands, and to cover a shortfall in capital caused by the sale of part of ABN Amro's operations to Deutsche Bank.

The bailout comes on top of a $3.5 billion cash injection in June and the $25.1 billion the state paid to buy the banks' Dutch businesses to save them from an impending bankruptcy in October 2008.

The package announced Thursday consists of a $4.5 billion capital injection and the cancellation of $2 billion in loans.

"This capitalization is necessary, desirable and prudent," Bos said in a letter to parliament, urging lawmakers to endorse the move. "Barring unforeseen consequences, this capital injection will be the last that the state grants," he said.

He said it should be seen as an "investment that will pay itself back in the form of a new, profitable bank."

In order to obtain approval from the EU Commission for the plan, the state has agreed to sell ABN's important commercial banking business unit HBU to Deutsche Bank for just more than $1 billion. The letter said that deal is expected to close in early 2010.

As part of the move, ABN Amro has accepted liability for 75 percent of any losses on an investment portfolio owned by HBU, with a maximum obligation of $2.4 billion.

ABN Amro will book an estimated loss of $1.6 billion on the sale, it said.

Deutsche Bank is entitled to a break fee of $52 million if the deal is scrapped.

Combining the Dutch banking operations of Fortis and ABN will lead to estimated annual savings of $1.6 billion, the letter said. The combined bank plans to slash up to 5,000 jobs among the 30,000 employed there as of 2008, according to an internal memo by Chief Executive Gerrit Zalm that was leaked in May.

The letter did not discuss any time frame for re-liberalizing ABN Amro, either by a sale or a public offering of shares.