Business | Banking
Dexia second Belgian bank to get bailout
Dexia became the second Belgian bank this week to get a government and shareholder bailout when Belgium, France and Luxembourg said they would inject almost 6.4 billion euros ($9.2 billion) to keep it afloat.
- AP
- Published: 00:02 October 1, 2008
- Image Credit: Bloomberg News
- Axel Miller, CEO of the Dexia Group, who immediately stepped down after the bank sought a capital infusion, said the bank had no real option to asking for state help.
Brussels: Dexia became the second Belgian bank this week to get a government and shareholder bailout on Tuesday when Belgium, France and Luxembourg said they would inject almost 6.4 billion euros ($9.2 billion) to keep it afloat.
Dexia's CEO Axel Miller - who immediately stepped down - said the bank had no real option to asking for state help because "our feeling was clearly that this week is going to be very tense on the market and we might be ... one of the banks that might be put under pressure."
Dexia, a French-Belgian specialist in lending to local governments that ran up huge losses in its US operations, closed nearly 30 per cent lower Monday - triggering emergency talks with government officials.
This came barely two days after Belgium, the Netherlands and Luxembourg moved to save Fortis bank on Sunday, pumping 11.2 billion euros ($16.4 billion) after its shares shrank by a fifth Friday.
Traders saw the bank as overleveraged.
Markets clearly welcomed the bailout, with Dexia's share price rallying nearly eight per cent in Paris trading and Fortis rising nine per cent in Amsterdam by mid-afternoon Tuesday.
Dexia said the extra money would allow it remain "one of the better capitalised banks in Europe" even if market volatility further devalues securities, equities and other products it holds.
Belgian authorities and Belgian shareholders said in a statement that they would invest three billion euros in the bank, while the French government and its investment arm CDC -which holds just over 10 per cent of Dexia - will invest another three billion euros. Luxembourg will add 376 million euros.
New shares
For Dexia, the Belgian and French investments come as a capital increase that will issue new shares at $9.90 each, while the Luxembourg government will get newly issued convertible bonds.
In return, the bank promised to improve the way it is run - with Miller and chairman Pierre Richard saying they would resign and governments demanding "significantly" better corporate governance.
Miller said the company had been hit by "very nervous markets" and was partly a victim of Fortis' troubles.
"I don't know of many instances recently where investors have been found willing to put additional equity in banks," he told reporters.
"We couldn't have foreseen just a week before last weekend that a major Belgian bank would be bailed out or that you'd have over the course of one single weekend signals that three, four, five banks across Europe were starting to have problems," he said.
He said banks needed an urgent response from US lawmakers who rejected a $700 billion rescue plan.
"The management of the crisis has at times been a little chaotic and the markets just don't accept that," he said.
"It's time for regulators globally to get together to find some kind of global solutions to a situation where banks essentially are not lending to each other anymore."
Splitting the bill
Belgium is splitting its share of the bailout between the federal and regional governments, with one billion euros ($1.43 billion) each from the federal state, the three Belgian regions combined and shareholders Gemeentelijke Holding, Arcofin and Ethias.
The French government will invest a billion euros, with its state investment arm Caisse des Depots et Consignations injecting two billion euros.
This will give France a 28-per cent stake in Dexia which is the main lender to French local governments.
Dexia ran into trouble with its US bond insurance unit FSA, which was hit hard by the subprime housing crisis, which saw loans made to people with poor credit drop sharply in value on worries that borrowers could not make costly repayments. Holders of bonds based on those mortgages suffered heavy losses.
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