Investments: Dexia Bailed Out

Dexia Bailed Out Twice

Dexia Bailed Out Twice

It was announced yesterday that France, Belgium, and Luxembourg are going to bail out the struggling bank Dexia after fears surfaced that it could go bankrupt. The Belgian government is set to buy the bank’s Belgian division for four billion euros, or £3.4 billion. Luxembourg said that a Qatari investment group would purchase the Luxembourg section. Trading in shares of the bank continued Monday afternoon after having been suspended, though the value continued to decrease.

Another Bailout

In addition, Dexia gained state guarantees of as much as 90 billion euros in order to maintain borrowing for the next ten years. These will be provided by Luxembourg giving 3%, France giving 36.5%, and Belgium giving 60.5%.

The bank asked for help for the second time in the three years since the start of the banking crisis, due to falling shares based on the bank’s exposure to the potential Greek default and after a liquidity squeeze. In 2008, it was bailed out with Belgium, France, and Luxembourg giving 6.4 billion euros to keep the bank in business.

Belgian Prime Minister Yves Leterme, released a statement Monday morning, saying, “We found an agreement on the fair division of the costs related to the management of the ‘rest bank’.” This was said after a 14-hour boardroom that began in the middle of the afternoon on Sunday.

Risk Exposure

The nearness of the collapse of the bank is worrying in the light of the eurozone debt crisis. Dexia has a global credit risk exposure of $700 billion, which is twice the GDP of Greece. The rescue of the bank is extremely important to make sure that the eurozone avoids more turmoil, though the bailout led to a warning from ratings agency Moody’s that Belgian government bonds could suffer a cut in ratings.

The bailout plan means that Dexia’s French municipal finance operations will be controlled by the state. In addition, the bank will announce the sale of healthy businesses like Denizbank in Turkey, to ensure they are not swallowed up by the crisis and the bank can begin to get back on track.

The Qatari investment group bailing out Dexia’s Luxembourg unit, Precision Capital, is also planning on purchasing the Belgian bank KBC’s Luxembourg unit. The Luxembourg government is also purchasing a stake in the Dexia as well.

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