Print | Share | Reprint

Dexia secures new three-state rescue

by Renee Cordes | Published October 11, 2011 at 8:31 AM

Belgium has agreed to buy the Belgian assets of Dexia SA for €4 billion ($5.4 billion) as part of a wider rescue of the first core euro-zone lender to fall prey to the Continent's sovereign debt crisis.

Dexia said Monday, Oct. 10 that the governments of Belgium, France and Luxembourg will guarantee up to €90 billion in financing for Dexia and its Dexia Crédit Local unit for 10 years, with the possibility of an extension. Belgium will provide 60.5% of the financing, France 36.5% and Luxembourg 3%. For Belgium, the guarantee represents an estimated 15% of its gross domestic product.

Putting Dexia in Belgian hands will enable the bank to reduce its short-term funding requirement by more than €14 billion, to improve the group's solvency by more than 200 basis points and to reduce its portfolio of nonstrategic assets by €18 billion, according to Dexia.

"The sale should ease the short-term funding issues the group is currently facing," analyst Thibaud Rutsaert of Bank Degroof wrote in a research note Monday. The analyst last week suspended his rating on the stock because of a lack of information about the lender's funding.

The agreement followed a Sunday meeting in Brussels between French Prime Minister François Fillon, Belgian Prime Minister Yves Leterme, Belgian Finance Minister Didier Reynders and Luxembourg Finance Minister Luc Frieden.

In a statement, the governments underscored their commitment to securing the future of Dexia, which saw its short-term funding disappear amid concern over its exposure to Greek sovereign debt. "The three governments confirm they will take all the necessary measures to ensure depositors' and creditors' safety," they said.

Dexia shares are set to resume trading later Monday. The stock fell 17% Oct. 6 before trading was suspended, and last sold for €0.85, equating to a market value of just below €1.65 billion.

The dismantling of Dexia still has several steps to go.

In the Monday announcement, Dexia's board confirmed ongoing negotiations with a still-unnamed group of international investors for the sale of Dexia's Luxembourg unit.

The potential bidders are widely believed to include state-backed Qatar Investment Authority. A binding offer will be submitted at the end of a two-week exclusivity period that started Monday, Dexia said.

The board also instructed Dexia CEO Pierre Mariani to pursue negotiations with Caisse des Dépôts et Consignations and La Banque Postale regarding the financing of French local authorities, including the backing of Dexia Municipal Agency by Caisse des Dépôts et Consignations, according to Monday's announcement.

The crisis at Dexia has intensified pressure on European leaders to craft a European response to the banking crisis, with German Chancellor Angela Merkel and French President Nicolas Sarkozy promising to deliver a plan for recapitalizing Europe's banks and solve Europe's sovereign debt problem by the Nov. 3 Group of 20 Summit in Cannes, France.

"We will recapitalize the banks," Sarkozy said in Berlin Sunday at a joint press conference with the German chancellor before they had dinner at her office. "We'll do it in agreement with our German friends because the economy needs it, for growth and financing."

The leaders failed to reveal what the plan would entail, insisting that Greece would stay in the euro but without repeating past promises not to let Greece fail -- raising expectations that they would allow a debt default.

The crisis surrounding Dexia comes less than three months after the lender received passing marks from the European Banking Authority in its first-ever stress tests of 91 European banks, prompting widespread criticism that the tests were not stringent enough.

The London-based regulator indicated last week that it may conduct another round of tests to reflect the worsening sovereign debt situation but has yet to come out with any specific plans.

Share:

Tags: bankruptcy | Belgium | Dexia SA | restructuring | sovereign debt

Restructuring

Dexia secures new three-state rescue

Free preview

Meet the journalists

Renee Cordes

Correspondent: Brussels

Movers & Shakers

Video

Fewer deals despite discount debt

Sectors