BELGIUM’S nationalisation of the domestic operations of Dexia was formally agreed in the early hours of yesterday by the bank’s board of directors and the Belgian government, along with state guarantees worth €90 billion to finance the rest of the group.
Brussels will pay €4 billion to take over Dexia Bank Belgium, which includes a large retail bank in a group which is otherwise focused on lending to local governments.
The forced divestment is the first step in the dismembering of the Franco-Belgian bank after it fell victim to a liquidity squeeze prompted by the euro zone debt crisis.
Dexia’s management was further instructed by its board to start negotiations to pair its French municipal loans business with the Banque Postale, a bank tied to the postal system in France, and the Caisse des Dépôts et Consignations, the French sovereign wealth fund that owns stakes in both Postale and Dexia.
France, Belgium and Luxembourg will jointly underwrite Dexia’s financing needs up to €90 billion for 10 years, in a repeat of 2008 when the three governments stepped in with €150 billion of guarantees to tide over Dexia after it ran into financing difficulties.
Belgium will provide 60.5 per cent of the guarantee, or €54 billion, with France up for 36.5 per cent and Luxembourg 3 per cent, it was agreed after discussions between the French and Belgian prime ministers on Sunday.
Shares in the troubled bank whipsawed when they resumed trading yesterday, falling 36 per cent at one stage before rising 6 per cent and then falling back to where they closed last week at €0.85.
The bailout negotiations were made more complicated by fears on Belgium and France’s side about the impact that new liabilities contracted to save the bank could have on their public finances.
The French government is said to be concerned about how the Dexia lifeline could affect the country’s triple-A credit rating, which allows it to borrow cheaply on international markets and gives it added clout in euro zone bailout negotiations.
Standard Poor’s credit rating agency yesterday confirmed the sovereign debt ratings of Belgium and France after details of the rescue plan were announced.
The government guarantees will help finance what remains of Dexia after the Belgian and French spin-offs, which are expected to be followed by other divestments.
The remaining “bad bank” will consist mainly of a bond portfolio worth about €100 billion, which requires financing which has weighed down Dexia’s balance sheet since the 2008 bailout. – (Copyright The Financial Times Limited 2011)
