Rising costs weigh on bank's profit

DEXIA:HIGHER THAN expected net profit at Dexia failed to prevent a drop in the Franco-Belgian bank's shares yesterday as underlying profits missed forecasts due to a one-off legal charge and higher financing costs.

Part-nationalised Dexia said, however, it was on track with its restructuring plan to meet conditions on state aid as it tries to carve out a future free from government guarantees. Dexia shares opened 4 per cent down in Brussels, at €3.80, denting a 46 per cent run-up since early July.

The bank, which passed European stress tests last month with a healthy Tier 1 capital ratio of 10.9 per cent, said it had sold more than €20 billion in assets as of August 2nd as part of an ongoing bid to shrink its balance sheet and cut risk.

“They’ve been doing good work on the deleveraging,” Bank Degroof analyst Ivan Lathouders said. “By deleveraging their balance sheet they are leaving their previous troubles behind.”

Dexia reaped gains in the second quarter from the sale of stakes in companies such as energy group SPE to meet European Commission conditions on state aid. Net profit came in higher than expected, but this was partly because of a one-off tax boost.

Revenue and pre-tax profit missed market forecasts, weighed down by financing costs and losses on disposals.

“Profits were strengthened by disposal gains and deferred taxes. I do not see where the good news is regarding the business lines,” a Paris analyst said, asking not to be named.

The bank said it was on track to close the sale of its stake in technology services firm Adinfo in the third quarter, depending on approval from Belgian competition authorities.

France, Belgium and Luxembourg rescued Dexia after a run on the bank’s shares in late 2008 in the depths of the crisis.

Under chief executive Pierre Mariani and chairman Jean-Luc Dehaene, a former Belgian prime minister, Dexia has managed to break free of government guarantees on borrowing but is facing the pain of higher funding costs as it weans itself off its past reliance on short-term financing.

Dexia reported second-quarter net profit of €248 million, down 12 per cent year on year, versus forecasts of €205 million, in a Reuters poll.

The figure was helped by a €30 million boost to the bottom line from deferred tax assets triggered in the quarter.

Revenue and pre-tax profit came out worse than expected, hampered by higher funding costs and a €138 million legal provision related to a court ruling in Slovakia. The bank said it would appeal the ruling. – (Reuters)