Belgium spearheads Dexia bailout

Dexia will receive an additional $121bn (€90bn) in funding guarantees for up to 10 years [EPA]

Belgium, France and Luxembourg are to bail out the embattled bank Dexia, following concerns it could go bankrupt.

Belgium said on Monday it would buy the bank’s Belgian subsidiary for €4bn ($5.4bn) and would provide the bulk of guarantees for the parent group’s leftover assets.

The plan came after French and German leaders agreed that Europe’s crisis-hit banks need to be recapitalised.

Dexia is the first large European bank to need a state bailout since the financial crisis of 2008, after it came under intense funding pressure due to its exposure to highly indebted eurozone states like Greece, Italy and Spain.

Yves Leterme, Belgium’s caretaker prime minister, said Dexia’s nationalisation was in the interest of its customers.

“Dexia’s clients can be sure and certain that their money is in full security at Dexia Belgium,” said Leterme.

On top of the nationalisation programme, the governments of Belgium, France and Luxembourg together will provide an additional $121bn (€90bn) in funding guarantees for the bank for up to 10 years.

Dexia would be left with $121bn in assets, some of which are described as “toxic” and would be covered by state-backed guarantees: 60.5 per cent from Belgium, 36.5 per cent from France and 3 per cent from Luxembourg.

The announcement followed marathon negotiations between the three governments and the bank’s management.

The Belgian and French governments were concerned that putting up more money for bank bailouts would threaten their credit rating and drive up interest rates on their bonds.

Moody’s Investors Service had placed Belgium’s Aa1 rating on review for a possible downgrade, due in part to the expected expense of guaranteeing that Dexia’s depositors will lose no money.

The French government, too, was under acute pressure to save Dexia as the bank is one of the country’s largest lenders to towns and cities.

Dexia’s retail operation has 6,000 staff and deposits totalling $107bn for four million customers.