Open

Coming up

Don't miss

Replay


LATEST SHOWS

MEDIAWATCH

No strategy and a beige suit

Read more

THE WORLD THIS WEEK

The World This Week - 29 August 2014 (part 2)

Read more

THE WORLD THIS WEEK

The World This Week - 29 August 2014

Read more

ENCORE!

Alain Choquette: A Hilarious Magician in Paris

Read more

FOCUS

France welcomes Iraqi Christian refugees

Read more

FRANCE IN FOCUS

Emmanuel Macron: A new economy minister with a pro-business agenda

Read more

THE OBSERVERS

More of this year's best Observers stories

Read more

#TECH 24

Changing the world, one video game at a time

Read more

IN THE PAPERS

Socialist Party summer conference kicks off in explosive atmosphere

Read more

  • Exclusive: Fabius warns of further sanctions against Russia

    Read more

  • British killer escapes from French psychiatric hospital

    Read more

  • First case of Ebola confirmed in Senegal

    Read more

  • Police hunt for British boy with brain tumour taken to France

    Read more

  • Chelsea’s Torres set for AC Milan switch

    Read more

  • Ukraine to relaunch NATO membership bid

    Read more

  • France shines in IMF list of world’s promising economists

    Read more

  • Mapping Ukraine: Canada and Russia in ‘tweet for tat’ row

    Read more

  • Obama has 'no strategy yet' on potential Syria strikes

    Read more

  • Netflix to woo French with ‘House of Cards’ set in Marseille

    Read more

  • French businesses ‘hoping for a new Thatcher’

    Read more

  • Syrian refugees surpass 3 million, UN says

    Read more

  • West backs Ukrainian claims of Russian incursion

    Read more

  • Libyan PM resigns as Islamists set up rival administration

    Read more

  • UN says 43 peacekeepers captured in Golan Heights

    Read more

  • The deleted tweets of Manuel Valls

    Read more

  • Peru seizes record 6.5 tonnes of Europe-bound cocaine

    Read more

  • Pakistan army to mediate between PM, protesters

    Read more

  • In pictures: Billions of locusts invade Madagascan capital

    Read more

  • Brad Pitt and Angelina Jolie say ‘I do’ in France

    Read more

Business

France and Belgium to prop up Dexia with ‘bad bank’ scheme

Video by Shirli SITBON

Text by News Wires

Latest update : 2011-10-05

France and Belgium stepped in to protect troubled Dexia bank at an emergency meeting late on Tuesday, approving the creation of a “bad bank” to hold the bank’s riskiest debts following a massive drop in the company’s share price.

AFP – France and Belgium stepped in Tuesday to guarantee the financing of troubled cross-border bank Dexia as its shares plunged spectacularly ahead of confirmation that it is to be broken up.

The two states, shareholders in a bank that specialises in investing in local government funds, acted as Dexia faced the threat of becoming the first major European institution to fall victim to the eurozone debt crisis.

Shares in the Franco-Belgian bank plunged more than 37 percent in early trade on Tuesday, later trimming the closing loss to around 20 percent, as French and Belgian finance ministers issued a statement of support.

"In the framework of Dexia's restructuring, the governments of France and Belgium, in coordination with our central banks, will take all necessary steps to ensure the protection of depositors and creditors," they said.

"To this end, they undertake to guarantee any finance raised by Dexia."

After an emergency late-night meeting, Belgium approved the creation of a so-called "bad bank" to house Dexia's riskiest debts while protecting its core business -- so confirming its dismantling.

Finance Minister Dider Reynders told journalists that "all that concerns the past, notably long-term loans that were struck with local authorities, will be guaranteed by the two countries."

The goal is to isolate 95 billion euros ($129 billion) worth of risky assets that the bank has been trying to get rid of for years, he said.

"Our will is to consolidate, reinforce and secure the banking activity in Belgium, like our French colleagues will do in France," Reynders said.

Belgium's central bank also moved to reassure account holders, saying the central banks of both Belgium and France "fully support" Dexia.

As the Moody's rating agency put Dexia on review for a downgrade, officials in Paris said a French state investment fund and the banking arm of the French postal service are jointly working on a plan to take on some of the activities of the ailing bank.

The Caisse des Depots and the state-owned Banque Postale plan to take over the financing of around 80 billion euros ($105 billion) of the French and Belgian local government assets now on Dexia's books, CDC officials told AFP.

The officials said CDC director general Augustin de Romanet hopes to put a formal version of the plan to the board of governors "in the shortest time possible, doubtless in the next few days."

French Finance Minister Francois Baroin compared the state guarantee to the countries' earlier 6.4-billion-euro bailout of Dexia in 2008, when it was hit by the US sub-prime loan crisis.

He said the governments would again "answer 'present'," if called upon, in order to protect "deposits in Belgium and loans to local governments."

Dexia is the leading provider of local government financing in France.

"Whatever happens, we will put in place a quick and effective solution which will guarantee there will be no collapse for this vital activity," Baroin said.

However, he did not spell out that there would be an eventual injection of state capital.

"All we are saying is the states will be present like in 2008," he said.

Late on Monday, the Franco-Belgian bank had held an emergency board meeting which left open the possibility of it being broken up.

"The worsening of the European sovereign debt crisis and the tensions on the interbank market led Dexia to accelerate its restructuring plan in May 2011," the bank said after a six-hour crisis meeting in Brussels.

"However, in the current environment, the size of the non-strategic asset portfolio (so-called 'legacy') impacts the Group structurally despite the good credit quality of its assets," it explained.

"This is why the Board of Directors asked the CEO ... to prepare the necessary measures to resolve the structural problems penalising the Group’s operational activities," it said.

Jean-Michel Cappoen, the head of the Belgian financial sector union Setca, told AFP: "According to the information we obtained after this meeting, the whole bank is up for sale. It's the end of the road."

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.

"This is the first bank that has really been hit by the current crisis," said trader Dov Adjedj at BGC Aurel securities. "It was already weak due to its very high level of assets."

Date created : 2011-10-05

  • BANKING

    France races to reassure investors on Dexia slide

    Read more

COMMENT(S)