Belgian-French financial services group Dexia agreed on the sale of its troubled US bond insurance subsidiary and launched a cost-saving drive after reporting a heavy third-quarter loss.
Dexia, the recipient of a €6.4 billion ($8 billion) public bailout in September, said in a statement today that it would sell the insurance business of loss-making Financial Security Guarantee (FSA) to US peer Assured Guaranty.
The deal excludes FSA's financial products business, containing the riskier securities linked to subprime mortgages, would will receive guarantees from Belgium and France.
Dexia said it would refocus on its core businesses in public, retail and commercial banking while simultaneously launching a 15 per cent cost savings plan, with €300 million of savings already identified.
"This guarantee, together with the previous state guarantee on Dexia wholesale funding and the recent capital injection by Dexia's core shareholders enables Dexia to face with confidence this major global financial crisis," Dexia Chairman Jean-Luc Dehaene said.
Dexia's net loss in the July-Sept period was €1.544 billion ($1.93 billion), at the top end of market expectations, due to a negative impact from the financial crisis of €2.191 billion. Excluding this, the net income was stable.
Analysts were expecting a hefty loss, but their forecasts ranged from €200 million to €1.7 billion.
Dexia said it would receive $361 million from Assured as well as 44.6 million new Assured shares, making for a total consideration of $722 million, based on yesterday's closing price. Dexia would hold 24.7 per cent of the US company.
FSA's financial products portfolio would be carved out of the transaction and put into run-off, under Dexia's ownership.
The Belgian and French states had agreed to provide a guarantee of the assets managed. Dexia would cover the first loss of $3.1 billion above the amount of $1.4 billion already reserved as of the end of September.
Reuters