Oct. 6 (Bloomberg) -- BNP Paribas SA agreed to take control of Fortis in Belgium and Luxembourg for 14.5 billion euros ($19.8 billion), completing a breakup of the largest Belgian financial- services company after a government rescue failed.

France's biggest bank will pay 9 billion euros in stock and 5.5 billion euros in cash for 75 percent of Fortis Bank Belgium, all of the Belgian insurance operations and 67 percent of Fortis's bank in Luxembourg, Paris-based BNP Paribas said today. Fortis's risky assets will be split off into a separate entity.

``They're taking over a majority of the assets and a minority of the problems, but they're not protected,'' said Mamoun Tazi, a London-based analyst with MF Global Securities Ltd. who has a ``buy'' rating on BNP Paribas shares. ``The execution risk of acquiring these operations is significant and management resources will be stretched.''

Governments from Brussels to Berlin raced to shore up Europe's faltering financial institutions as the global banking crisis escalated. In Germany, the government and the country's banks and insurers agreed yesterday on a 50 billion-euro rescue package for Hypo Real Estate Holding AG, after an earlier agreement fell apart. European leaders meeting in Paris this weekend pledged to bail out their own nations' banks, stopping short of a regional rescue effort.

``We set out to defend the interests of the bank and its depositors,'' Belgian Prime Minister Yves Leterme said at a press briefing in Brussels late yesterday. These measures ``will provide the means for Fortis Banque to develop.''

`Bigger Is Better'

The Belgian state will become BNP Paribas's largest investor with a 11.6 percent stake, and Luxembourg will own 1.1 percent after the deal. Belgium will appoint two new members to the French bank's board. Chief Executive Officer Baudouin Prot, on a conference call with analysts today, said BNP will probably keep the Fortis brand in Belgium.

The French bank fell 3.85 euros, or 5.4 percent, to 67.50 euros in Paris trading, valuing the French bank at 61.5 billion euros. Fortis shares will be suspended until investors have had the opportunity to analyze the impact of the agreement, Belgium's stock market regulator said. Europe's Dow Jones Stoxx 600 Index had its steepest intraday decline since 1987.

``Uncertain days are over for Fortis's saving-account holders,'' Prot said. ``Bigger is better especially when you do it at attractive pricing,'' he said, adding that BNP Paribas doesn't plan any asset sales to finance the purchase.

Nor is the Paris-based bank planning ``big'' acquisitions in corporate and investment banking, Prot said. ``BNP Paribas will remain ready to seize small- or mid-size'' acquisitions, he said.

Biggest by Deposits

The French bank will gain about 3.3 million retail clients in Belgium and Luxembourg, as well as 1,458 branches, including those in Poland, Turkey and France. BNP Paribas will also acquire Fortis's Belgian insurance business, and its investment management operations, private banking, merchant banking and consumer finance operations, all outside the Netherlands.

With about 586 billion euros in deposits, BNP Paribas will become the largest lender by that measure in the 15 countries sharing the euro, the bank said.

``Fortis was a model in combining banking and insurance,'' Prot said. ``It was key for BNP Paribas to keep and master the unity of these activities,'' he said.

The purchase of Fortis in Belgium and Luxemburg will probably be completed by December or January, Chief Financial Officer Philippe Bordenave said.

Ring-fenced Assets

BNP Paribas has been able to make acquisitions after suffering smaller subprime losses than rivals such as Deutsche Bank AG and UBS AG. The French company agreed in June to buy Bank of America Corp.'s prime brokerage unit, which caters to hedge- fund customers, for as much as $300 million.

Under the terms of the deal with Belgium, Fortis will split off a 10.4 billion-euro portfolio of structured products into a separate entity. The remaining Fortis holding company will have a 66 percent stake in that portfolio, the Belgian government 24 percent, and BNP Paribas 10 percent. Fortis will also hold onto its international insurance operations.

The products transferred to the vehicle, to be marked down on average by an estimated 30 percent, haven't been selected yet, Fortis Chief Financial Officer Lars Machenil said. The portfolio represents only a ``small part'' of Fortis's total structured credit portfolio, said Fortis CEO Filip Dierckx.

`No Choice'

Fortis had 41.7 billion euros of structured investments at the end of June, including collateralized debt obligations and U.S. mortgage-backed securities. The portfolio is divided between the new entity, the Dutch insurance unit bought by the Netherlands and Fortis's Belgian banking division, Dierckx said. Selling the assets soon wouldn't be in the company's interest, he said.

``The 10.4 billion-euro of assets will be chosen by us,'' Bordenave said. ``We are going to select all the lines we dislike in this portfolio.''

Fortis, formerly the largest Belgian financial-services firm, got an 11.2 billion-euro capital injection from Belgium, the Netherlands and Luxembourg last week. The Dutch government took control of Fortis's units in the Netherlands for 16.8 billion euros on Oct. 3 after deciding the rescue didn't go far enough.

Fortis became a casualty of the global financial turmoil after pouring 24.2 billion euros into the acquisition of ABN Amro Holding NV assets last year just as the U.S. subprime-mortgage market collapsed and credit markets froze.

``Few people would have predicted what has taken place over the past week,'' Dierckx told reporters. ``In the current market environment in which the whole financial sector has been hit, we didn't have any other choice.''

Second Rescue

In the Sept. 28 rescue that went awry, the three Benelux governments agreed to put capital into Fortis by purchasing minority stakes in the banking units in each country. Fortis also planned to sell ABN Amro's private-banking and Dutch retail banking units, which hadn't been integrated.

As clients withdrew money and Fortis had trouble obtaining loans, the Dutch government decided to buy Fortis Bank Nederland Holding NV, Fortis Insurance Netherlands NV and Fortis Corporate Insurance NV, and the company's holding in ABN Amro.

``The new alliance between Fortis and BNP Paribas is an important step in the further stabilization of the financial system,'' Dutch Prime Minister Jan Peter Balkenende and Finance Minister Wouter Bos said in a joint statement. ``All in all, there's a win-win situation for all involved parties.''

Governments are protecting banks as the financial crisis that drove Lehman Brothers Holdings Inc. and Seattle-based Washington Mutual Inc. into bankruptcy widens. Ireland's government is guaranteeing banks' deposits and debts for two years, seeking to restore confidence in the country's financial industry.

Last week, Belgium and France threw Dexia SA a 6.4 billion- euro lifeline and Britain seized Bradford & Bingley Plc, the U.K.'s biggest lender to landlords.

To contact the reporters on this story: Fabio Benedetti-Valentini in Paris at fbenedettiva@bloomberg.net.

Last Updated: October 6, 2008 12:35 EDT