Fortis is 'keystone' European bank

Before steel and chrome became fashionable as construction materials, people used to use bricks. In the building of bridges the brick that sits in the centre of the arc was known as the keystone.

If that brick goes, so does the bridge.

The Dutch-Belgian financial services firm Fortis is very much the keystone of banking in Holland and Belgium. It's also the ninth biggest firm of its type in the world.

The issue at stake this week is whether the banking arm of Fortis will face a run on its deposits in the same way that Northern Rock did in the autumn of 2007.

Asset sale

So far customers have withdrawn nearly 5bn euros of their money, still only 3% of the bank's total deposits but enough to send a shiver down the spines of European financiers and policy makers.

The problems for Fortis started in January this year when it announced it faced around $1.5 bn of losses in the American sub-prime catastrophe.

"We are flabbergasted by what is reflected in the market"
Herman Verwilst, Fortis

Fortis to speed up asset sale

Since then managers have been at pains to point out that even with those losses it will still turn a profit.

And in June they announced a sell off of assets to raise 5bn euros to improve the liquidity of the organisation.

But uncertainty amongst depositors, and a plunging share price further forced the hand of chief executive Herman Verwilst, which is why today a further 3bn euros worth of sales was announced.

Confusing structure

Even hardened traders now admit that liquidity is not really the problem for Fortis, it is a public perception of weakness, and the possibility that a big shark could suddenly decide to cash in on its very low market value.

But other critics point out the keystone of Dutch and Belgian finance is also hamstrung by having a headquarters in both countries, and a confused corporate structure.

So far Europe has avoided the calamity of systemic banking breakdown.

It has even gloated quietly at events across the Atlantic, but the plight of Fortis shows the Europeans are not out of the woods yet.

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