FRANCE WANTS a “quick and effective solution” to the problems facing Dexia, finance minister François Baroin said yesterday as shares in the Franco-Belgian banking group plunged on reports that it will be broken up.
With the prospect of Dexia becoming the first major European victim of the financial crisis unsettling markets, Mr Baroin and his Belgian counterpart, Didier Reynders, moved to soothe concerns by saying they would guarantee the bank’s loans and take “all necessary measures” to protect clients.
Both governments have stakes in the bank since a bailout it received in 2008.
Shares in the Dexia group, which specialises in investing in local government funds, fell more than 37 per cent in early trading yesterday, later cutting the closing loss to 20 per cent.
Mr Baroin said his government “will answer ‘present’” if Dexia needed a bailout but refused to be drawn on the creation of a “bad bank” to take the lender’s toxic loans.
He said Paris and Brussels would step in to guarantee savings in Belgium and to ensure French local authorities can continue to have access to loan financing. Dexia is the leading provider of local government financing in France.
“Whatever happens, we will put in place a quick and effective solution which will guarantee there will be no collapse for this vital activity,” Mr Baroin said of the local government requirements.
He said the problems facing Dexia today were a “replica” of those the bank encountered three years ago, when it needed a €6.4 billion bailout after being hit by the US subprime loan crisis.
The rescue plan looks likely to involve a break-up of the bank, with the sale of healthier operations, such as its Belgian and Turkish banking businesses, as well as the creation of the state-supported “bad bank”.
“That is a possibility,” said Mr Reynders of the bad bank idea. “We have spoken a lot about that.”
Mr Baroin did not say whether a capital injection was under consideration, but neither France nor Belgium are keen to pump in more money given their budgetary constraints.
In Paris, news agency AFP reported that a French state investment fund and the banking arm of the French postal service were jointly working on a plan to take on some of the activities of the ailing bank.
The Caisse des Depots and the state-owned Banque Postale plan to take over the financing of about €80 billion of the French and Belgian local government assets now on Dexia’s books, it reported.
Dexia’s board held an emergency meeting on Monday night after ratings agency Moody’s put the bank’s three main operating units on review for a downgrade on concern that it was struggling to fund itself.
