Dexia taps emergency funds

City A.M. Reporter
TROUBLED Franco-Belgian bank Dexia is drawing on emergency liquidity funds, a banking source said yesterday, as its host governments rush to finalise a long-awaited deal to provide guarantees on its debt.

A French finance ministry source said an interim agreement to guarantee Dexia’s financing would be signed “within days” and would be based on the deal reached in October.

That echoed comments by Belgian Finance Minister Didier Reynders, who said on Wednesday he hoped to reach an agreement with the European Commission about Dexia’s restructuring plan in the coming days.

Belgium, which is expected to be liable for 60.5 per cent of the €90bn (£78bn) in guarantees that it, France and junior partner Luxembourg said last month they would provide, has now been hit by the Eurozone debt crisis.

France, which is due to provide 36.5 per cent of the guarantees, leaving Luxembourg with the remaining three per cent, has its own concerns on debt, with credit rating agency Fitch saying on Wednesday that the country would have limited room to absorb any new shocks to its public finances without endangering its AAA status.

While it continues to wait for the guarantees to be finalised Dexia is making use of the Emergency Liquidity Assistance (ELA) facilities “from the Belgian national bank and other national banks (within the Eurozone),” the banking source said yesterday.

analyst with a major European bank said the fact Dexia was tapping national central banks for liquidity via the European Central Bank network showed how bad the situation had become, amid a more general freezing up of liquidity in the interbank lending market.