Tuesday 24 January 2017

Rescue deal in place for crisis-stricken Dexia

banking

Philip Blenkinsop and Robert-Jan Bartunek

Published 10/10/2011 | 05:00

FRANCE, Belgium and Luxembourg agreed a rescue plan for Dexia Bank yesterday ahead of a planned board meeting expected to decide on a break-up of the first lender to fall victim to the eurozone crisis.

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French Prime Minister Francois Fillon, his Belgian counterpart Yves Leterme and Luc Frieden, the finance minister of Luxembourg, where Dexia has a large presence, found a solution for the stricken Franco-Belgian bank yesterday.

"The suggested solution, which is also the result of intense consultations with all partners involved, will be submitted to Dexia's board of directors for approval," Mr Leterme's office said after two hours of talks at Egmont Palace in Brussels.

A final decision was expected before the markets opened this morning.

Budgets

Dexia's board was forced to seek government help last week after a liquidity crunch hobbled the lender and sent its shares down 42pc.

At stake in the talks is how much each government will have to contribute to help wind down Dexia, a thorny subject, given that Belgium and France are already struggling to contain large deficits.

The need to recapitalise banks is emerging as another strain for European governments whose budgets are already stretched.

Belgium had a debt-to-gross domestic product ratio of 96.2pc last year, lower only than Greece and Italy among eurozone members and on a par with Ireland.

The burden of bailing out Dexia led ratings agency Moody's to warn Belgium late on Friday that its Aa1 government bond ratings could fall.

The negotiations to dismantle Dexia, which has global credit risk exposure of $700bn (€524bn) -- around four times Ireland's GDP -- are being watched closely for signs that Europe might be capable of decisive action to resolve its banking crisis.

Dexia, which used short-term funding to finance long-term lendings, has found credit drying up as the eurozone debt crisis worsened.

Dexia's near collapse stoked investors' anxieties about the strength of European banks and coincided with growing talk about co-ordinated EU action to recapitalise banks across the Continent. (Reuters)

Irish Independent

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