Business World

Sunday 21 January 2018

Dexia board in crisis talks over bank options

euro crisis

Stephen Taylor

THE board of Dexia, the Franco-Belgian banking group, is holding emergency talks to consider strategic options, including an effective break-up of the struggling bank.

The municipal financing expert was looking at setting up a "bad bank" to hold a portfolio of assets which has long burdened it.

The Brussels-based group, one of the first European banks to be bailed out in 2008, holds €20.9bn in sovereign debt issued by Greece, Italy and other troubled eurozone countries.

It remains heavily reliant on short-term borrowing to finance its operations, even though much of its lending is to long-term borrowers.

The group has traditionally been the biggest operator in the funding of French municipalities, but it also runs a significant retail network in Belgium and Turkey.

A state guarantee by Belgium and France would be available if required.

Belgium's Finance Minister, Didier Reynders, said at the meeting of finance ministers in Luxembourg: "The French and Belgian governments are behind their banks, whether that is Dexia or another."

A spokesman declined to elaborate on whether a bad bank would receive guarantees.

Dexia SA which was rescued by France and Belgium in 2008, plunged 10pc in Brussels on concern the bank was struggling to fund itself and would now need a second bailout.

The shares fell 15 cents to €1.30, cutting Dexia's market value to about €2.5bn.

The bank in August posted a €4.03bn second-quarter loss, the largest in its history, as the firm wrote down its holdings of Greek debt. The Brussels- and Paris-based lender said at the time that US investors' concern about the European sovereign debt crisis had limited its ability to borrow dollars in the money market.

The lender relied on €34bn of European Central Bank funding at the end of June.

Chief Executive Officer Pierre Mariani has sought to reduce the need for funding as Europe's sovereign-debt crisis spreads to Italy and Greek bondholders take losses on their holdings.

The bank's commitments in the US include about $14bn of standby bond purchase agreements -- guarantees to buy municipal bonds if investors want out -- and guaranteed investment contracts, or GICs, which municipalities buy with money raised from bond sales pending use for schools, roads and other public works.

"Dexia is an extremely complicated file," said Benoit Petrarque, an Amsterdam-based analyst at Kepler Capital Markets.

"The fact two countries are involved, both under pressure from rating agencies, makes it even more difficult.

"We are not in 2008 anymore, when you could just inject multi billions of cash," he added.

Irish Independent

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