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France and Belgium take control of Dexia - Another dead bank even after three bailouts?

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Further help cannot be ruled out says minister as lender is handed third bailout amidst mounting losses


Simon Neville

The Guardian,

Thursday 8 November 2012 20.02 GMT



Dexia bank needs billions in new capital
Dexia bank has been given billions in new capital by France and Belgium. Photograph: Julien Warnand/EPA

Franco-Belgian bank Dexia has been given a third bailout as the repercussions of the banking crisis continue to shake the financial system four years on.

The French and Belgian governments will pay €5.5bn (£4.4bn) to take near-full control of the bank, once the world's biggest municipal lender, after it reported a nine-month loss of €2.39bn.

The institution lost €11.6bn last year due to its exposure to sovereign debt across Europe, and contributed to Belgium's credit rating being downgraded after the French and Belgian governments guaranteed €90bn of loans.

The latest bailout involves Belgium paying €2.9bn and France €2.6bn, leaving them guaranteeing 51.4% and 45.6% of the bank's debts respectively. The remaining 3% is held by Luxembourg. Belgium's finance minister, Steven Vanackere, said he could not rule out a future bailout: "Is it a total guarantee? People who give such a guarantee are unwise."

The bank is still exposed to government debts across the eurozone with €38.5bn outstanding in Italy, €24.1bn in Spain, €3.8bn in Portugal, €1.7bn in Ireland and €405m in Greece – although Greek exposure has been reduced by 74%.

The deal, agreed on Wednesday night, will give the French and Belgian governments a holding of around 94%.

The bank said it was necessary to "avoid the materialisation of a systemic risk in the case of bankruptcy of the Dexia Group".

In the bank's first bailout in 2008 it received €6bn of help from France and Belgium. Last year the bank, which provides backing for more than 40 private finance initiative projects in the UK, persuaded France and Belgium to guarantee loans worth up to €90bn, due to its €3.4bn exposure to Greek debt putting off rival banks from lending it any money. That deal was allowed on condition Dexia cut operations and sold off subsidiaries.

A sell-off of assets at a loss has hit Dexia's bottom line, with the company revealing a €599m loss on the sale of its Turkish business DenizBank and a €466m loss from selling its Dexia Municipal Agency.

Dexia Municipal Agency was sold for €8.7bn, while Russian firm Sberbank bought DenizBank for €2.8bn. Its Belgian bank was nationalised and its Luxembourg unit was sold to a Qatari consortium led by the country's royal family.

Any deal on the bailout must first be agreed by the European Commission, which is wary of raising sovereign debt. Belgian debt is already at nearly 100% of GDP. There has been tension with the commission over past bailouts, with bureaucrats citing anti-competition rules and delaying the decision.

Last year's guarantee to the bank led to credit rating agency Moody's downgrading Belgium's credit rating from AA1 to AA3 on a negative outlook.

The agency said in December that the second Dexia bailout was a main factor in its decision. It said: "There is a significant risk that the dismantling of the Dexia group, and especially the run-off process of Dexia Credit Local, will result in increases in government debt metrics, although Moody's notes that the precise extent of any increase remains highly uncertain … Moody's estimates these current exposures as representing close to 10% of the country's GDP."


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