Dexia on the brink after 11.6-billion euro loss

Brussels: Bailed out Franco-Belgian bank Dexia said it risked going out of business as it reported a 2011 net loss of €11.6 billion (Dh56.6 billion), hit by its break-up and exposure to Greek debt and other toxic assets.

Dexia, the first European banking victim of the Eur-ozone debt crisis, said its continuation as a "going concern" relied on several factors — state guarantees of up to €90 billion to allow it to borrow, its ability to pay for those guarantees and European Commission approval of its restructuring plan.

"In the absence of additional corrective measures, the non-realisation of one or several of the above mentioned assumptions could impair the ‘going concern' status of Dexia SA and challenge the group's liquidity and solvency situation," the company said in a statement.

"These assumptions rely on certain external factors beyond the control of Dexia," it continued.

Belgium, France and Luxembourg agreed in October to provide the €90 billion of guarantees for 10 years, but Dexia has only to date received commitments for half that amount until the end of May.

The European Commission gave temporary approval in December for state guarantees of up to €45 billion, adding it had doubts whether the guarantee mechanism was compatible with the EU single market.

Dexia, which accepted a state-led break-up and the nationalisation of its Belgian banking arm in October, said yesterday it would not pay a dividend and also did not plan to pay a coupon on its hybrid debt.

Disposal

Dexia, which is set to be stripped down to little more than a holding of bonds, said it suffered a €4 billion loss due to the disposal of Dexia Bank Belgium and a further €1 billion hit from the sale of French lending arm Dexia Municipal Agency. It also booked a €3.4 billion loss on its holding of Greek sovereign bonds, while the cost of an accelerated sale of low-grade US assets, carried out in the first half of the year, was €2.6 billion.

KBC Securities analyst Dirk Peeters said the size of the loss was not a surprise, given the bank had already indicated a loss of €10.5 billion at the nine-month mark.

"There are still a lot of questions to be answered, such as on guarantees, the position of the European Commission," he said.

Dexia said core shareholder equity stood at €7.6 billion at the end of Dec-ember.

In a rare piece of positive news, Dexia said its assets for sale reserve was €800 million higher by mid-February from the end of 2011.