Dexia’s midnight mares

8 November 2012 By George Hay Follow @gfhay

Paris and Brussels are pumping 5.5 bln euros into the ailing lender. Dexia always looked like it might need capital on top of the liquidity support agreed last year. But the funding guarantees are likely to be an ongoing burden, and it’s not certain further capital won’t be needed.

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France and Belgium are to inject 5.5 billion euros into Dexia in the form of preference shares, the two euro zone governments confirmed on Nov. 8.
The capital contribution will be split so that Belgium provides 53 percent, or 2.9 billion euros, and France provides 47 percent, or 2.6 billion euros. By contrast, a 90 billion euro funding guarantee provided by France, Belgium and Luxembourg in Dexia’s last bailout, in 2011, was split so that 60.5 percent came from Belgium, 36.5 percent from France and 3 percent from Luxembourg.
Dexia also announced a proposed change to the structure of this funding guarantee, which is currently being considered by the European Commission. The new guarantee would cover 85 billion euros of debt issuance, with Belgium taking a 51.41 percent share, France 45.59 percent and Luxembourg 3 percent. The changes have been made to shift some of Dexia’s central bank funding onto market-based funding, albeit wrapped by the state guarantee.
The capital hole was created by the need to write down the value of Dexia Credit Local, the bank said. The Belgian and French states will receive preferential rights to any dividends paid by Dexia, at a level of 8 percent of the nominal value of the capital being injected.
Dexia made a net loss of 2.4 billion euros in the nine months to the end of September, partly due to a 599 million euro loss on the disposal of Denizbank, a 466 million euro write down on the value of Dexia Municipal Agency (DMA) and various restructuring costs.
The group’s short-term funding needs are now 55.6 billion euros. Funding guarantees provided by the three states reached 53.8 billion euros. Its use of central bank “emergency liquidity assistance” is now 8.2 billion euros.
Belgian Finance Minister Steven Vanackere said the recapitalisation should be the final one for Dexia, but that nobody could be certain that this would be the case.

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