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Dexia bank shares tumble despite assurances

Text by News Wires

Latest update : 2011-10-04

Shares of troubled Franco-Belgian bank Dexia fell Tuesday amid signs that it could be split up. The market drop came despite assurances from the French and Belgian governments to “step in if necessary”.

AFP - Shares in Franco-Belgian bank Dexia plunged more than 37 percent in early trade on Tuesday, despite a government pledge to step in if needed amid concerns a collapse or break-up is on the cards.

The French and Belgian governments will "step in if necessary" to bail out Dexia once more, Belgium's finance minister Didier Reynders said early Tuesday, following an emergency board meeting which left open the possibility of it being broken up.

The Franco-Belgian bank, already bailed out when the US mortgage market crashed in late 2008, is in danger of becoming the first major European banking institution to fall since the sovereign debt crisis began last year.

Dexia's shares lost more than 10 percent on Monday on warnings of an imminent credit rating downgrade over fears about its liquidity and wider concerns of exposure to eurozone sovereign debt.

At 0921 GMT the bank's shares were down 32.31 percent to 0.88 euros in a market down 1.94 percent.

Reynders discussed the bank's problems during a meeting with French counterpart Francois Baroin on the margins of eurozone talks in Luxembourg.

Dexia is heavily locked into long-term financing deals with French local authorities, and deals in this area could be the first part of the bank's operations to be hived off, banking sources told AFP.

Some 95 billion euros in assets that are weighing heavily on the bank could be split off.

The two finance ministers held their direct talks amid rising concern among eurozone counterparts at the knock-on effects for an under-capitalised banking system if Greece defaults and other sovereign debt risks emerge amid a sharpening economic downturn.

French banks have been hit especially hard as ratings agencies have marked them down for having over-invested in risky Greek and other weak eurozone sovereign bonds.

Generally, all banks have increasingly been restricted to short-term funding sources on markets in recent weeks, further pushing up the cost of maintaining their liquidity, Moody's noted on Monday.

Fellow ratings agency Fitch also highlighted "structural weaknesses" with Dexia last week, warning of increasingly difficult access to financing.

Reynders insisted that savers' desposits are secure, adding: "The French and Belgian governments are behind their banks, whether it's Dexia or another one."

Since early 2010, the bank has been undergoing heavy restructuring ordered by the European Union's competition watchdogs.

Dexia chairman Jean-Luc Dehaene, a former Belgian prime minister and senior UEFA adviser, last week denied any plans to break up the group.

AlphaValue analyst Christophe Nijdam however said such an approach "could be interpreted as a positive sign" by the ratings agencies.

Date created : 2011-10-04

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