Belgium set to buy Dexia unit
Source: Agencies |
October 11, 2011, Tuesday
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Print Edition
Print Edition
THE Belgian state will buy the national subsidiary of embattled bank Dexia for 4 billion euros (US$5.4 billion) and provide tens of billions of euros in new guarantees as part of a wider bailout of the lender, the first victim of a new squeeze in European credit markets.
The part-nationalization of Franco-Belgian Dexia, announced yesterday, was triggered by other banks' increasing reluctance to lend to it due to its exposure to highly indebted eurozone states like Greece and Italy and to struggling municipalities in the United States.
Shares in Dexia plummeted 33 percent when they resumed trading yesterday after they had been suspended last Thursday. Shares slid to 0.57 euro yesterday afternoon in Brussels.
Banks depend on loans to one another for a large part of their daily financing, but can quickly withhold them if they sense there is a danger that a counterpart might collapse and not repay the money. Such fears intensified last week, pushing Dexia, which had a larger dependence on such funding than many of its rivals, to need rescuing from the government.
Belgium's caretaker prime minister Yves Leterme said the nationalization was necessary to insulate the Belgian retail bank from the risks of the wider group, Dexia SA. He said support from the state ensures that all of Dexia's clients "can be sure and certain that their money is in full security."
On top of the nationalization, Belgium, France and Luxembourg together will provide an extra 90 billion euros in funding guarantees for the bank for up to 10 years.
Belgium will provide 60.5 percent of these guarantees, 36.5 percent will come from France and the remaining 3 percent from Luxembourg.
Dexia's board is in negotiations with French banks Caisse des Depots et Consignations and La Banque Postale to find a solution to the financing of French local authorities, in which Dexia plays an important role.
Officials were worried that a collapse of the bank would exacerbate an already tight funding environment for banks in Europe, as analysts warn of a credit crunch similar to the one that arose after Lehman Brothers sank.
German Chancellor Angela Merkel and French President Nicolas Sarkozy said Sunday they were working on a coordinated plan to recapitalize European banks that would be completed by the end of the month.
Moody's Investors Service warned Belgium on Friday that its Aa1 government bond ratings may fall partly due to the likely burden of bailing out Dexia.
The part-nationalization of Franco-Belgian Dexia, announced yesterday, was triggered by other banks' increasing reluctance to lend to it due to its exposure to highly indebted eurozone states like Greece and Italy and to struggling municipalities in the United States.
Shares in Dexia plummeted 33 percent when they resumed trading yesterday after they had been suspended last Thursday. Shares slid to 0.57 euro yesterday afternoon in Brussels.
Banks depend on loans to one another for a large part of their daily financing, but can quickly withhold them if they sense there is a danger that a counterpart might collapse and not repay the money. Such fears intensified last week, pushing Dexia, which had a larger dependence on such funding than many of its rivals, to need rescuing from the government.
Belgium's caretaker prime minister Yves Leterme said the nationalization was necessary to insulate the Belgian retail bank from the risks of the wider group, Dexia SA. He said support from the state ensures that all of Dexia's clients "can be sure and certain that their money is in full security."
On top of the nationalization, Belgium, France and Luxembourg together will provide an extra 90 billion euros in funding guarantees for the bank for up to 10 years.
Belgium will provide 60.5 percent of these guarantees, 36.5 percent will come from France and the remaining 3 percent from Luxembourg.
Dexia's board is in negotiations with French banks Caisse des Depots et Consignations and La Banque Postale to find a solution to the financing of French local authorities, in which Dexia plays an important role.
Officials were worried that a collapse of the bank would exacerbate an already tight funding environment for banks in Europe, as analysts warn of a credit crunch similar to the one that arose after Lehman Brothers sank.
German Chancellor Angela Merkel and French President Nicolas Sarkozy said Sunday they were working on a coordinated plan to recapitalize European banks that would be completed by the end of the month.
Moody's Investors Service warned Belgium on Friday that its Aa1 government bond ratings may fall partly due to the likely burden of bailing out Dexia.
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