Dexia shares jump on talk of FSA unit sale: traders

LONDON Wed Nov 5, 2008 11:25am EST

A man stands at the entrance of Franco-Belgian bank Dexia headquarters in Brussels, October 7, 2008. REUTERS/Francois Lenoir

A man stands at the entrance of Franco-Belgian bank Dexia headquarters in Brussels, October 7, 2008.

Credit: Reuters/Francois Lenoir

LONDON (Reuters) - Shares in Dexia DEXI.PA, the world's largest municipal lender, rose as much as 15 percent on Wednesday on market talk that the company was going to sell its U.S. bond insurance unit, Financial Security Assurance (FSA).

At 11 a.m. EST, Dexia shares were 13 percent higher at 5.287 euros, compared with a 1.8 percent fall in France's CAC index .FCHI.

Dexia said on October 20 that its board had mandated Chief Executive Pierre Mariani to explore all options that would reduce the risk of FSA's activities.

The CEO is due to report back by November14, when Dexia releases its third quarter results. A Dexia spokeswoman said she had nothing more to add.

Dexia's board has asked Mariani to produce plans to refocus the group on its core business.

A decision on FSA will be key.

Dexia said in August FSA would exit its riskier asset-backed business and focus on its more stable core of funding U.S. government bodies after the unit made a hefty third-quarter loss. But it still has mortgage-related assets on its books.

FSA's business model would break if credit ratings agencies were to cut its triple-A rating. FSA and Assured Guaranty Ltd (AGO.N) are the last two established bond insurers with top ratings.

Dexia's board decided to keep in place a $5 billion unsecured credit line to the U.S. subsidiary.

(Reporting by Sitaraman Shankar and Philip Blenkinsop; Editing by Richard Hubbard)

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