Guaranteed problems

4 October 2011 By George Hay Follow @gfhay

State shareholders have pledged to ease the stricken bank’s liquidity problems by guaranteeing its debt. But shaky sovereigns have less firepower than they did in 2008, and other lenders may need similar help. Euro zone banks need a more comprehensive funding solution.

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The French and Belgian governments on Oct. 4 committed to guarantee the debts of Dexia, after the Franco-Belgian bank saw its share slump up to 38 percent on the same day.
The guarantee is thought to apply to new issuances of bank debt, according to a person familiar with the situation. It could function along similar lines to a scheme launched in the autumn of 2008.
Didier Reynders, the Belgian finance minister, said a bad bank for Dexia’s worst assets was needed, which would also have state guarantees.
The French government is working to break off Dexia’s French local lending arm and combine it French state bank Caisse des Depots and Banque Postale, a senator from French president Nicolas Sarkozy’s centre-right party told Reuters on Oct 4.
By 1430 GMT, Dexia shares were trading at 1.02 euros, down 21 percent on the day.

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