Dexia saved as fire sale of assets begins

A FIRE SALE of Dexia assets was underway last night after France, Belgium and Luxembourg agreed to spend €90bn (£78.45bn) on a bailout for the crippled bank’s ailing bonds unit.

The break-up of the group will see Dexia Bank Belgium, the largely retail division, sold to Belgium for €4bn.

Dexia is also seeking backing from the banking arm of France’s post office and its sovereign wealth fund Caisse des Depots and is in negotiations to sell BIL, the Luxembourg division, to a minority-majority partnership of the Grand Duchy and the Qatari royal family. Yesterday the Qataris also bought the private banking arm of Belgium’s KBC.

The future of Dexia’s other units remains uncertain, with its stake in Turkish lender Denizbank and RBC Dexia Investor Services, its global joint venture with Royal Bank of Canada, likely to be subject to bids. It was on Denizbank in particular that Dexia chief executive Pierre Mariani had pinned his hopes for growth.

The initial sales were agreed yesterday after a 14-hour board meeting.

The capital injection will be used to provide support for 10 years to the “bad bank”– the business that contains €95.3bn of poorly performing bonds – which is being retained by Dexia. Its portfolio includes €7.7bn in junk bonds and €7.4bn in mortgage-backed securities tied to the US. Belgium is contributing €54.45bn, France €32.85bn and Luxembourg €2.7bn.

Dexia needed help after being shut out of the wholesale funding market, upon which it relied to finance its long-term loans to local authorities in France and Belgium, and because of its €3.5bn of exposure to Greece.

It comes only three years after it received a €6.4bn bailout from Belgium, France and Luxembourg.

Shares in Dexia resumed trading yesterday and closed down 4.7 per cent at €0.81.

TIME LINE | DEXIA SEES PAST FINANCIAL WOES RESURFACE

September 30 2008
Belgium, France and Luxembourg agree to inject €6.4bn to rescue the bank.

November 2008
Dexia obtains €150bn worth of state guarantees from Belgium and France.

September 18 2009
Belgium, France and Luxembourg renew their state guarantees for Dexia but lower the overall amount down from €150bn to €100bn.

August 4 2011
Dexia reports its worst-ever loss, hit by its exposure to Greece.

October 3 2011
Moody's puts Dexia on review for a downgrade. Shares close 10.16 per cent lower.

October 4 2011
France and Belgium say they will take necessary measures to guarantee Dexia’s financing

October 6 2011
Dexia shares suspended.