BELGIUM WILL pay €4 billion to take over the domestic retail banking arm of Dexia after it agreed with France yesterday on the terms of a break-up of the stricken financial services group, according to people close to the talks.
The board of Dexia was meeting to approve the break-up and nationalisation of its Belgian arm late yesterday in its second emergency board meeting in a week.
The break-up will involve continued assets sales until the group is reduced to a “bad bank” consisting of a bond portfolio worth about €100 billion, which will receive guarantees from both France and Belgium, according to people involved in the negotiations. An announcement giving full details is expected this morning.
French prime minister François Fillon held talks in Brussels with his Belgian counterpart, Yves Leterme, over how to carve up the bank after it fell victim to a liquidity squeeze prompted by the euro zone debt crisis. The operations and shareholding of Dexia, which specialises in municipal lending, are split between France and Belgium, with both countries eager to limit the impact of a bailout on their public finances.
Belgium’s federal government has opted to take over Dexia Bank Belgium, including its retail network, for €4 billion which, along with other sale proceeds, will be used to help fund the bad bank, according to people close to the talks. The country’s regional governments will participate in the purchase to preserve some political control over the lender. A buyer to bring the bank back to private ownership would then be found.
Didier Reynders, Belgian finance minister, said it was preferable to return banks to private ownership rather than have the state running them, as it had been in 2008 when Belgium sold Fortis to France’s BNP Paribas.
“We could still be in this in five years or more,” said Mr Reynders. However, he said, Belgium would not be willing to sell assets at knock-down prices.
France, meanwhile, is working on a solution for the arm of Dexia that lends to French municipalities. It plans to pair that business with a consortium of the Banque Postale, a lender tied to the postal system, and the Caisse des Dépôts et Consignations, the French sovereign wealth fund. This new business would then take over responsibility for financing local authorities in future.
Last week, Belgium was placed on a negative ratings watch by Moody’s, which cited the banking situation as one factor for a possible future downgrade. The spread of Belgian 10-year bonds compared with benchmark German paper, a key indicator of perceived risk, now stands at slightly less than 2 per cent, up from 1 per cent at the start of the year.
After disposals of other assets – including Dexia’s stake in DenizBank, a Turkish lender, and its Luxembourg subsidiary – Dexia will consist of a “bad bank” with a bond portfolio worth about €100 billion.
The “bad bank” will receive guarantees from both France and Belgium, according to people involved in the negotiations.
Belgian leaders have publicly expressed fears that they would be held with the lion’s share of the costs of bailing out Dexia and financing the “bad bank”. They have asked Paris to play its part in financing the rescue, with a 50-50 split of the costs being the starting point in negotiations.
However, Belgium could take more of the liabilities in exchange for payment for providing guarantees, said a person advising one of the parties.
The French government is said to be concerned that new liabilities on its balance sheet could cause it to lose its AAA credit rating.
In Belgium, municipalities will be doubly impacted by Dexia’s troubles: not only do they depend on it for loans, many are also indirect shareholders and rely on its dividends as a revenue stream.– (Copyright The Financial Times Limited 2011)
