THE BOARD of Dexia, the Franco-Belgian banking group, was last night holding emergency talks to consider strategic options including an effective break-up of the struggling bank, people familiar with the matter said.
Dexia was looking at setting up a “bad bank” to hold a portfolio of assets which has long burdened it, the sources said. The group, one of the first European banks to be bailed out in 2008, holds €20.9 billion ($27.7 billion) in sovereign debt issued by Greece, Italy and other troubled euro zone countries and still relies on a funding model that matches short-term borrowing in the markets to long-term lending.
A state guarantee by Belgium and France would be available if required, the people said. The group’s business focuses on funding French municipalities but it also runs a significant Belgian retail network.
Didier Reynders, Belgium’s finance minister, said at a meeting: “The French and Belgian governments are behind their banks, whether that is Dexia or another.”
Under the plans being discussed, Dexia’s activities in France and Belgium would be either merged or develop partnerships with other entities.
The bank, which received a €6 billion bailout from France, Belgium and other major shareholders at the height of the financial crisis in 2008, has one of the largest exposures to Greece among overseas lenders.
The board meeting was organised at the close of another day of heavy losses for Dexia shares, which fell 10 per cent after it was put on a negative downgrade watch by ratings agency Moody’s. Dexia’s exposure to Greek government debt totals €3.4 billion. Moody’s cited “worsening funding conditions in the market” as the reason for its concern.
Amid continuing concern about their own exposure to Greek debt, BNP Paribas (-5.5 per cent), Société Générale (-5 per cent) and Crédit Agricole (-4.2 per cent) were also down.
Dexia’s market capitalisation is only €2.5 billion and its core capital is seen as insufficient to absorb big hits. The company has taken a €338 million hit to cover a 21 per cent loss on Greek sovereign debt maturing by 2020 – part of a plan agreed by private sector investors in July. However, with market prices indicating investors could suffer a loss of 50 per cent or more, Dexia’s Greek bill could be more than €1 billion more.
Since the beginning of 2010, Dexia has undertaken a major restructuring imposed by Brussels in exchange for aid received in 2008, but in the last three months the bank’s shares have fallen 40 per cent, while those of BNP Paribas and Société Générale have fallen 48 per cent and 56 per cent.
Dexia chairman Jean-Luc Dehaene said after a board meeting last week that neither the bank nor its shareholders wanted the group to break apart and that it would continue to examine options to strengthen its balance sheet. – Additional reporting: Copyright The Financial Times Limited 2011
