BELGIUM and France will pay €5.5bn to take almost full control of Dexia in the hope this third bailout will be the last for the bank that was once the world's largest municipal lender.
Dexia, which at its peak had business across Europe and a large US empire, had relied on long-term lending serviced with short-term borrowing, which dried up in the financial crisis.
The capital injection is the third attempt by Belgium and France to shore up the lender and end its troubles. It absorbed €6.4bn in 2008 and was pulled apart last year.
The governments announced the move shortly before Dexia released third-quarter earnings showing a net loss for the first nine months of €2.39bn, hit by writedowns related to asset sales. It lost €11.6bn last year.
Belgian Finance Minister Steven Vanackere said it should be the group's last recapitalisation, but added: "Is it a total guarantee? People who give such a guarantee are unwise."
Dexia's third bailout serves as a warning for Spain and Greece to take decisive action to resolve their banking crises. The size of bailouts can mount as losses on bad loans spiral, funding costs at troubled banks rise and restructure costs rise. (Reuters)