Business World

Thursday 23 November 2017

EU's finance ministers set to recapitalise ailing banks

France and Belgium to stave off collapse of Dexia Bank as heavy exposure to Greece sees shares fall to all-time low

Laura Noonan, in Luxembourg

EUROPEAN Union finance ministers are examining ways of co-ordinating recapitalisations of financial institutions after they agreed that additional measures were urgently needed to shore up the region's banks.

Although the details of the plan are still under discussion, officials said EU ministers meeting in Luxembourg had concluded that they had not done enough to convince financial markets that Europe's banks could withstand the current debt crisis.

In a sign that European governments were preparing to act, Wolfgang Schäuble, the German finance minister, said Berlin could, if necessary, reactivate support mechanisms it put in place in 2008 to recapitalise the banks. The mechanisms had expired and the German government had until now insisted they were not needed.

"Everyone said the big concern is that worrying developments on the financial markets will escalate into a banking crisis," Mr Schäuble said at a press conference.

France and Belgium yesterday promised to support Dexia Bank which has lent billions to Greece and saw its shares collapse yesterday.

Debt crisis

The two governments will support Dexia via guarantees for a 'bad bank' holding its worst assets in a bid to prevent its troubles from deepening the eurozone debt crisis.

Dexia has seen its shares drop as much as 38pc to an all-time low yesterday as confidence in the group collapsed.

"We have to put all the dangerous parts outside of the bank. It is here where the state guarantee will come into play, it's what's called a 'bad bank'," Belgian Finance Minister Didier Reynders said after a joint Franco-Belgian government statement pledging support.

The bank's problems, along with the delays in agreeing the next tranche of loans for Greece, dominated conversation in Luxembourg where Europe's finance ministers met yesterday.

Afterwards, Finance Minister Michael Noonan said Dexia would not affect Ireland. "It's a Franco-Belgian issue, it's nothing to do with the Irish situation," he said.

"We have seen banking shares marked down significantly over the last number of weeks, there's been great volatility and I suppose it's part of the worldwide concern about economies not going as well as we would have expected," he added.

The minister said that while "some smaller" European banks may be forced to recapitalise because of the latest crisis, his "private opinion" was that Irish banks had already been capitalised "in excess of what was absolutely necessary".

The recapitalisation of those European banks was "a matter for the individual governments and for the monetary authorities, it's not something that Ireland is going to get involved in because we've done our job at a fairly high cost", he added.

Yves Leterme, the caretaker prime minister of fellow Dexia shareholder Belgium, summoned core cabinet members to an emergency evening meeting to discuss the bank's problems.

Luxembourg, not a shareholder but home to one of Dexia's three main arms, said it would take an active role in the bank's restructuring. Finance minister Luc Frieden said he did not expect final decisions on the bank's future yesterday, adding it was "not a panic situation".

Dexia has already taken a €338m loss to cover a 21pc Greek debt discount agreed by private investors. However, it stands to lose more if European finance ministers decide to make banks take bigger losses on Greek debt than they have already agreed to accept, as was being discussed by ministers.

Apart from Greece, Dexia is also suffering from a mismatch between short-term borrowing to finance long-term lending to public authorities, which prompted a €6bn bailout in 2008.

(Additional reporting by Reuters)

Irish Independent

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