Belgian regional authorities moved today to bail out embattled bank KBC, providing up to €3.5 billion after its shares collapsed in a crisis of investor confidence.
The bank, which had already received an infusion of state cash in October, said that authorities in the northern Flanders region had agreed to inject €2 billion in fresh capital. They also extended a facility for a further €1.5 billion if deemed necessary.
The bank owns KBC Ireland here, which was formally known as IIB Bank.
'The financial position of the group remains solid after we obtained the commitment to an additional non-dilutive capital-strengthening transaction', said CEO Andre Bergen.
KBC had to resort to taking state cash after writing down the value of its portfolio of toxic collateralised debt obligations, which have ravaged the balance sheets of many a bank in the recent financial crisis.
The bank said it booked writedowns on the portfolio for the whole of 2008 of €4 billion, leading to an estimated full year loss of €2.5 billion. In exchange for the bailout, Flanders would receive a non-voting stake in the bank and the move was structured so that the value of existing shareholders stock would not be diluted.
KBC's shares had gone into a freefall over investor concerns about the bank's need for fresh capital to offset losses related to its portfolio of soured debt instruments.
With KBC facing a crisis of investor confidence, Belgian Finance Minister Didier Reynders has said the federal government was considering a second round of measures to prop up the country's ailing banks.
KBC already received €3.5 billion of state money at the end of October during a first round of capital injections into Belgian banks. The bank said today that the terms and conditions for the Flanders regional bailout would be similar to the federal injection from late October.
The financial crisis has already caused considerable drama in Belgium and even handed it the unenviable title of being the first country to lose its government due to the turmoil.
The government of ex-prime minister Yves Leterme resigned in December over allegations that an official had sought to influence a court ruling that Fortis was broken up unfairly without consulting minority shareholders.
