Philip Blenkinsop and Robert-Jan Bartunek Brussels
Franco-Belgian bank Dexia agreed early yesterday to the nationalisation of its Belgian banking division and secured state guarantees in a rescue that could pressure other euro zone governments to beef up their banking sectors.
Belgium will pay e4 billion (R43bn) to buy Dexia Bank Belgium, the largely retail Belgian division, which has 6 000 staff and deposits totalling e80bn from 4 million customers.
Dexia also received state guarantees of up to e90bn to secure borrowing over the next 10 years. Belgium would provide 60.5 percent of these guarantees, France 36.5 percent and Luxembourg 3 percent.
Dexia’s announcement came after a board meeting that lasted 14 hours from mid-afternoon on Sunday after France, Belgium and Luxembourg agreed on a rescue plan.
The extraordinary meetings at the end of the weekend had echoes of the dismantlement of financial group Fortis in October 2008 by the Netherlands, Belgium and BNP Paribas. Then, shareholders protested at the initial terms offered, and only agreed on improved terms six months later.
The governments rushed to support Dexia after it became the first bank to fall victim to the two-year-old euro zone debt crisis, as a credit crunch denied the bank access to wholesale funds and sent its shares down 42 percent last week.
“We found an agreement on the fair division of the costs related to the management of the ‘rest bank’,” Belgian Prime Minister Yves Leterme told a news conference in the early hours of yesterday.
The likely burden of bailing out Dexia led Moody’s Investors Service to warn Belgium late on Friday that its Aa1 government bond ratings might fall.
The country’s ratio of debt to gross domestic product (GDP) was 96.2 percent last year, lower only than Greece and Italy among euro zone members and on a par with bailout recipient Ireland.
Finance Minister Didier Reynders said the deal should not push Belgium’s debt-to-GDP ratio above 100 percent.
Dexia, which used short-term funding to finance long-term lending, found credit drying up as the euro zone debt crisis worsened. The problem was exacerbated by the bank’s heavy exposure to Greece.
Dexia has global credit risk exposure of $700bn (R5.6 trillion) – more than twice Greece’s GDP – and its rescue has stoked investors’ anxieties about the strength of European banks in general.
The rescue came as the leaders of France and Germany agreed that European banks needed to be recapitalised, but papered over differences on how that would happen.
Paris wants to tap the euro zone’s e440bn European Financial Stability Facility to recapitalise French banks, while Berlin insists the fund should be used as a last resort.
There were fresh reports over the weekend that French banks BNP Paribas and Société Générale might agree to capital injections as part of a Europe-wide plan to boost lenders’ financial strength. However, both banks denied such plans.
Dexia’s board had instructed chief executive Pierre Mariani to enter into exclusive talks with Caisse des Dépôts et Consignations (CDC) and La Banque Postale for an agreement on the financing of French local authorities and support for Dexia Municipal Agency from CDC, the bank said in its statement.
It also reported yesterday that chairman Jean-Luc Dehanae would leave the board of the Belgian division.
It was not clear what would be the fate of the bank’s healthy businesses.
Its Luxembourg division is set to be sold. – Reuters