The governments of France and Belgium have agreed to inject a further €5.5bn into Franco-Belgian financial institution Dexia, marking the third bailout of the group in four years.
The latest rescue, which was agreed as Dexia reported a Q312 net loss of €1.23bn, will see France provide €2.59bn and Belgium €2.92bn in exchange for preference shares that give them first rights to any value the group might eventually yield. Belgian regions and France’s state-owned Caisse des Depots et Consignations also hold stakes in the group and their approval will be needed.
Dexia said that the latest capital injection was needed due to a “significant write-down” on the value of its holding in its French unit, Dexia Credit Locale, and the high costs of funding as it relies on the temporary liquidity guarantees of Belgium, France and Luxembourg. Dexia undertook a divestiture programme in late 2011, following its second bailout, and has been steadily selling off assets including Turkey’s Denizbank – which contributed €599m of its Q312 loss – and its Luxembourg unit.
The two governments also agreed to change the way that state guarantees to Dexia are shared out, although the agreement is subject to approval by EU competition authorities. Belgium’s share of the financial burden is reduced from 60.5% to 51%, while France’s contribution will rise from 36.5% to 46% and Luxembourg, where the group has an operating subsidiary, will continue to provide the remaining 3%. The deal also calls for a cut in the overall limit on these state loan guarantees to €85bn from €90bn.
Dexia Bank operated a retail business in Belgium but its core business was financing public bodies and local authorities in France and Belgium. It has suffered a series of financial problems since its near-collapse in September 2008 when Paris and Brussels shored it up with funding of more than €6bn.
In October 2011, it was decided to nationalise the group, following a run on its shares triggered by concerns over its exposure to Greek debt, and shortly after the European Banking Authority (EBA) had awarded it a bill of health after a stress test.
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