Dexia Board Meets as France, Belgium Tussle Over Troubled A# Stock
w*s
1 楼
Dexia SA (DEXB)’s board meets today to study options to dismantle the
French-Belgian bank that has brought Europe’s sovereign debt crisis to the
heart of the region’s financial system.
While France and Belgium have rushed to protect their local units, hurdles
to an agreement remain as they wrestle over responsibility for assets hit by
the crisis that has caused the bank’s short-term funding to evaporate.
Dexia’s troubled assets are being folded into a “bad bank” and could
amount to as much as 190 billion euros ($254 billion).
Rescuing Dexia -- the first victim of the debt crisis at the core of Europe
-- has become critical to preventing contagion in the region’s banking
industry. Dexia’s balance sheet, with total assets of about 518 billion
euros at the end of June, is about the size of the entire banking system in
Greece and larger than the combined assets of financial institutions bailed
out in Ireland in the last 2 1/2 years.
“The governments have to reach a deal this weekend or we’ll see trouble on
the interbank market,” said Michael Rohr, a banking analyst with Silvia
Quandt Research GmbH in Frankfurt. “Investors are looking at which banks
have large public finance operations like Dexia.”
Paris- and Brussels-based Dexia has retail branch networks in two European
Union founding nations -- Belgium and Luxembourg -- and is a former world
leader in municipal lending.
Sticking Points
The 18-member board, equally split between France and Belgium, may review a
plan under which Dexia would set up a bad bank for its troubled assets, hive
off its French municipal loan book into a venture with state-owned La
Banque Postale and Caisse des Depots et Consignations, and seek buyers for
units such as its Belgian bank, Denizbank AS of Turkey and its asset-
management division.
The board meeting, scheduled to start at 3 p.m. in Brussels, will be the
third in less than a month, after those on Sept. 27 and Oct. 3. Among
sticking points for Belgium and France may be which assets to put in the bad
bank and what share of the lender’s borrowings each government should
guarantee.
“The situation is more complex than one where you have one bank, one
country, one regulator,” said Cor Kluis, an Utrecht, Netherlands-based
analyst at Rabobank International with a “reduce” recommendation on Dexia.
“The process will probably take longer than expected and I don’t know if
they’ll be able to reach a solution this weekend.”
Splitting Burden
France and Belgium may have agreed on splitting the burden of Dexia’s bad
bank, which will hold 120 billion euros of risky U.S., Italian, Spanish, and
Belgium loans, Le Journal du Dimanche said, without citing anyone. Belgium
and France may guarantee 60 percent and 40 percent, respectively, of the
refinancing of these loans, the newspaper said. The proceeds of the sale of
Dexia’s profitable assets such as its Belgian retail bank will go to the
bad bank to mitigate its losses, according to the newspaper.
Separately, CDC will take 74 billion euros of other loans to local
governments, of which 10 billion euros are considered “risky,” and France
will assume part of the potential losses in the future, the newspaper said.
Dexia dropped 17 percent in Brussels on Oct. 6 before being suspended, and
will resume trading tomorrow. The stock fell 42 percent last week on concern
that the breakup will leave shareholders with little of value. It has
plunged more than 90 percent since a 2008 bailout.
“Once you go on this road, it won’t end well for shareholders,” said
Kluis. “Governments aren’t there to save shareholders.”
Stress Tests
Standard & Poor’s on Oct. 6 downgraded the credit ratings on three units,
Dexia Credit Local, Dexia Bank and Dexia Banque Internationale a Luxembourg,
citing the group’s limited access to wholesale funding markets. The
ratings are on credit watch with “developing implications,” S&P said.
France and Belgium are coming to Dexia’s rescue three months after it got a
clean bill of health in European Union stress tests, and three years after
they injected capital to save the company during the 2008 credit crunch.
In 2008, after injecting 6 billion euros, the governments provided Dexia
guarantees of as much as 150 billion euros. Belgium covered 60.5 percent of
the guarantees, France 36.5 percent and Luxembourg 3 percent.
Now, negotiations are again focused on who bears what part of the guarantees
for the bank.
“It’s complicated for the states to reach an accord,” said Benoit
Petrarque, an analyst at Kepler Capital Markets in Amsterdam. “There are
budgetary constraints and no one wants to invest capital.”
Ratings at Risk
Belgium’s Aa1 local- and foreign-currency ratings were placed under review
for a downgrade by Moody’s Investors Service because of rising funding
risks for euro-area nations with high levels of debt and additional bank
support measures that are likely to be needed.
The review will focus on the vulnerabilities of Belgian public debt in the
current euro-area sovereign crisis and potential costs and contingent
liabilities that the government may incur in supporting Dexia, Moody’s said
in a statement on Oct. 7. Moody’s will also assess how the risks for the
growth outlook of the economy and the government’s fiscal and economic
plans may impact the country’s debt trajectory.
A large chunk of the troubled assets are on the balance sheet of Dexia
Credit Local, a French unit. Dexia Credit Local carries most of the bank’s
95 billion-euro bond portfolio, which includes 21 billion euros of Greek,
Italian, Portuguese, Spanish and Irish sovereign debt. Dexia’s municipal
lending units in Italy and Spain, which it agreed to dispose of to win
European Commission approval for its 2008 bailout, are also on the French
unit’s balance sheet.
Local Units
“The fair distribution of the burden is a very sensitive and crucial
element in the negotiations,” Belgian Prime Minister Yves Leterme said on
RTL radio on Oct. 6. “To save Dexia, we need a fair division of
responsibility.”
Belgium plans to nationalize Dexia Bank Belgium NV, Leterme told labor
unions on Oct. 7, according to ACV-CSC, a workers’ union. Leterme has said
he’ll do whatever it takes to safeguard the bank.
Dexia said on Oct. 6 that an investor is interested in its profitable retail
and private banking unit in Luxembourg. Belgian daily L’Echo reported that
a Qatari sovereign wealth fund was in discussions to buy the unit, Dexia
Banque Internationale a Luxembourg, for 900 million euros, without saying
where it got the information.
‘Restore Calm’
That announcement set off concern that Dexia’s most valuable assets will be
sold at fire-sale prices to international buyers in response to a temporary
funding squeeze.
Groep Arco, Dexia’s second-biggest Belgian shareholder, said on Oct. 6 that
it “opposes a forced sale of good units of the group at very low prices to
foreign entities.”
In France, state-owned CDC and La Banque Postale may join with Dexia to
create a new company to take over the French municipal lending arm,
according to a statement on Oct. 6 from a postal union, whose
representatives attended a board meeting where the plan was presented. Paris
-based La Poste, the parent of Banque Postale, declined to comment, as did
CDC and Dexia.
“Dexia is not an isolated problem,” said Rabo’s Kluis. “The question for
all investors in Europe is how politicians are going to handle this, and
what they want to see is a coordinated and professional solution. That would
be a good opportunity to restore calm.”
French-Belgian bank that has brought Europe’s sovereign debt crisis to the
heart of the region’s financial system.
While France and Belgium have rushed to protect their local units, hurdles
to an agreement remain as they wrestle over responsibility for assets hit by
the crisis that has caused the bank’s short-term funding to evaporate.
Dexia’s troubled assets are being folded into a “bad bank” and could
amount to as much as 190 billion euros ($254 billion).
Rescuing Dexia -- the first victim of the debt crisis at the core of Europe
-- has become critical to preventing contagion in the region’s banking
industry. Dexia’s balance sheet, with total assets of about 518 billion
euros at the end of June, is about the size of the entire banking system in
Greece and larger than the combined assets of financial institutions bailed
out in Ireland in the last 2 1/2 years.
“The governments have to reach a deal this weekend or we’ll see trouble on
the interbank market,” said Michael Rohr, a banking analyst with Silvia
Quandt Research GmbH in Frankfurt. “Investors are looking at which banks
have large public finance operations like Dexia.”
Paris- and Brussels-based Dexia has retail branch networks in two European
Union founding nations -- Belgium and Luxembourg -- and is a former world
leader in municipal lending.
Sticking Points
The 18-member board, equally split between France and Belgium, may review a
plan under which Dexia would set up a bad bank for its troubled assets, hive
off its French municipal loan book into a venture with state-owned La
Banque Postale and Caisse des Depots et Consignations, and seek buyers for
units such as its Belgian bank, Denizbank AS of Turkey and its asset-
management division.
The board meeting, scheduled to start at 3 p.m. in Brussels, will be the
third in less than a month, after those on Sept. 27 and Oct. 3. Among
sticking points for Belgium and France may be which assets to put in the bad
bank and what share of the lender’s borrowings each government should
guarantee.
“The situation is more complex than one where you have one bank, one
country, one regulator,” said Cor Kluis, an Utrecht, Netherlands-based
analyst at Rabobank International with a “reduce” recommendation on Dexia.
“The process will probably take longer than expected and I don’t know if
they’ll be able to reach a solution this weekend.”
Splitting Burden
France and Belgium may have agreed on splitting the burden of Dexia’s bad
bank, which will hold 120 billion euros of risky U.S., Italian, Spanish, and
Belgium loans, Le Journal du Dimanche said, without citing anyone. Belgium
and France may guarantee 60 percent and 40 percent, respectively, of the
refinancing of these loans, the newspaper said. The proceeds of the sale of
Dexia’s profitable assets such as its Belgian retail bank will go to the
bad bank to mitigate its losses, according to the newspaper.
Separately, CDC will take 74 billion euros of other loans to local
governments, of which 10 billion euros are considered “risky,” and France
will assume part of the potential losses in the future, the newspaper said.
Dexia dropped 17 percent in Brussels on Oct. 6 before being suspended, and
will resume trading tomorrow. The stock fell 42 percent last week on concern
that the breakup will leave shareholders with little of value. It has
plunged more than 90 percent since a 2008 bailout.
“Once you go on this road, it won’t end well for shareholders,” said
Kluis. “Governments aren’t there to save shareholders.”
Stress Tests
Standard & Poor’s on Oct. 6 downgraded the credit ratings on three units,
Dexia Credit Local, Dexia Bank and Dexia Banque Internationale a Luxembourg,
citing the group’s limited access to wholesale funding markets. The
ratings are on credit watch with “developing implications,” S&P said.
France and Belgium are coming to Dexia’s rescue three months after it got a
clean bill of health in European Union stress tests, and three years after
they injected capital to save the company during the 2008 credit crunch.
In 2008, after injecting 6 billion euros, the governments provided Dexia
guarantees of as much as 150 billion euros. Belgium covered 60.5 percent of
the guarantees, France 36.5 percent and Luxembourg 3 percent.
Now, negotiations are again focused on who bears what part of the guarantees
for the bank.
“It’s complicated for the states to reach an accord,” said Benoit
Petrarque, an analyst at Kepler Capital Markets in Amsterdam. “There are
budgetary constraints and no one wants to invest capital.”
Ratings at Risk
Belgium’s Aa1 local- and foreign-currency ratings were placed under review
for a downgrade by Moody’s Investors Service because of rising funding
risks for euro-area nations with high levels of debt and additional bank
support measures that are likely to be needed.
The review will focus on the vulnerabilities of Belgian public debt in the
current euro-area sovereign crisis and potential costs and contingent
liabilities that the government may incur in supporting Dexia, Moody’s said
in a statement on Oct. 7. Moody’s will also assess how the risks for the
growth outlook of the economy and the government’s fiscal and economic
plans may impact the country’s debt trajectory.
A large chunk of the troubled assets are on the balance sheet of Dexia
Credit Local, a French unit. Dexia Credit Local carries most of the bank’s
95 billion-euro bond portfolio, which includes 21 billion euros of Greek,
Italian, Portuguese, Spanish and Irish sovereign debt. Dexia’s municipal
lending units in Italy and Spain, which it agreed to dispose of to win
European Commission approval for its 2008 bailout, are also on the French
unit’s balance sheet.
Local Units
“The fair distribution of the burden is a very sensitive and crucial
element in the negotiations,” Belgian Prime Minister Yves Leterme said on
RTL radio on Oct. 6. “To save Dexia, we need a fair division of
responsibility.”
Belgium plans to nationalize Dexia Bank Belgium NV, Leterme told labor
unions on Oct. 7, according to ACV-CSC, a workers’ union. Leterme has said
he’ll do whatever it takes to safeguard the bank.
Dexia said on Oct. 6 that an investor is interested in its profitable retail
and private banking unit in Luxembourg. Belgian daily L’Echo reported that
a Qatari sovereign wealth fund was in discussions to buy the unit, Dexia
Banque Internationale a Luxembourg, for 900 million euros, without saying
where it got the information.
‘Restore Calm’
That announcement set off concern that Dexia’s most valuable assets will be
sold at fire-sale prices to international buyers in response to a temporary
funding squeeze.
Groep Arco, Dexia’s second-biggest Belgian shareholder, said on Oct. 6 that
it “opposes a forced sale of good units of the group at very low prices to
foreign entities.”
In France, state-owned CDC and La Banque Postale may join with Dexia to
create a new company to take over the French municipal lending arm,
according to a statement on Oct. 6 from a postal union, whose
representatives attended a board meeting where the plan was presented. Paris
-based La Poste, the parent of Banque Postale, declined to comment, as did
CDC and Dexia.
“Dexia is not an isolated problem,” said Rabo’s Kluis. “The question for
all investors in Europe is how politicians are going to handle this, and
what they want to see is a coordinated and professional solution. That would
be a good opportunity to restore calm.”
