Dexia rescue fears spark stocks slump

EUROPEAN banking stocks were spooked yesterday over fears the €90bn (£77bn) deal to rescue Franco-Belgian bank Dexia could be about to unravel.

Financial stocks fell in Britain, France and Belgium after a report that Paris and Brussels were at loggerheads over short-term funding guarantees designed to allow Dexia’s “bad bank” to come off emergency liquidity and re-enter financial markets.

Belgium wants to France to increase its level of guarantees because it can fund itself at a cheaper rate, according to Belgian media. Both governments denied the claims but stocks slumped anyway. Société Générale and Natixis fell 2.7 per cent and 6.8 per cent respectively, because of their exposure.

In Britain, Royal Bank of Scotland sank 5.86 per cent to 17.34p, Lloyds fell 2.46 per cent to 21.84p and Barclays dropped 3.08 per cent to 147.9p.

Earlier in the day Didier Reynders, the Belgian finance minister, tried to shore up confidence by saying he hoped to reach an agreement on Dexia with the European Commission in the coming days.

Last month the bank agreed state guarantees from France, Belgium and Luxembourg for up to €90bn of borrowings over the next 10 years. The countries want to get Dexia out of expensive Emergency Liquidity Assistance and issue government guarantees instead.

The burden for interim guarantees followed the same ratio as the October deal, with 60.5 per cent falling to Belgium, 36.5 per cent to France and three per cent to Luxembourg.

A banker familiar with the deal said: “France struck a very good deal on Dexia ... It would not be surprising that some people within the Belgian apparatus might feel uncomfortable”.

Re-opening negotiations would be “like opening Pandora’s box” because of the instability it would trigger more instability, he added.