COLUMN-KBC's 3rd bailout puts Belgium on the map: Margaret Doyle

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

LONDON, May 14 - Here is a multiple choice question about KBC, the Belgian bank that has just been bailed out by its national government. Was the bank brought to its knees by: a) fancy structured credit exposures; b) the deteriorating standing of the insurers who underwrote those exposures; c) property busts in Eastern Europe; or d) all of the above. Yes, dear reader, the answer is d.

Few banks have managed to score on all fronts, but KBC has done it and the Belgian taxpayer is counting the cost.

The sheer scale of the mess first became apparent when the Belgian bank unveiled a first quarter loss of 3.6 billion euro loss on May 14.

This was thanks to a 4.1 billion euro write-down relating principally to the declining credit-worthiness of MBIA -- the U.S. "monoline" insurer that is currently being sued by a group of banks. The banks claim that MBIA illegally restructured its operations by moving $5 billion of assets out of the insurance arm, leaving it effectively insolvent.

This exposed KBC -- perceived by the market to be one of MBIA's weaker counterparties -- to concerns about the strength of its capital position.

To head off concerns about what might happen where MBIA really unable to meet its obligations, KBC has asked for its third bailout in seven months. The federal government is insuring some 20 billion euro-worth of exposure to collateralised debt obligations and opaque structured bonds (KBC has to take the first hit of 3.2 billion euros).

The Belgian taxpayer has already injected 5.5 billion euros into KBC. That was bigger than KBC's entire equity market capitalisation as of midday on May 14 after the shares dropped 26 percent.

The sell-off is a reversal of a remarkable rally over the past two months. The shares had risen five-fold from the March low as hopes rose that the worst was over for the whole banking sector. A rising tide lifts all boats, they thought. But not, it appears, if there are holes below the waterline.

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The Belgian taxpayer has already injected 5.5 billion euros into KBC. That was bigger than KBC's entire equity market capitalisation as of midday on May 14 after the shares dropped 26 percent.

The sell-off is a reversal of a remarkable rally over the past two months. The shares had risen five-fold from the March low as hopes rose that the worst was over for the whole banking sector. A rising tide lifts all boats, they thought. But not, it appears, if there are holes below the waterline.

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