France, CDC to take 32 percent stakes in Dexia unit: source
PARIS (Reuters) - The French government and state bank Caisse des Depots et Consignations (CDC) will each take a stake of roughly 32 percent in the municipal finance unit of bailed-out lender Dexia (DEXI.BR), a source familiar with the talks said on Thursday.
The government takeover, which would also involve France's state-owned postal bank buying slightly less than 5 percent in Dexia Credit Local (DCL), is part of a bid to plug a funding gap for French towns, cities and other public entities estimated at between 10 billion euros ($13.3 billion) and 12 billion.
The agreement would value Dexia's Dexma unit at about 380 million euros, the source said, adding that the Franco-Belgian bank's DCL subsidiary would retain about 32 percent of Dexma.
"There's a critical need for financing on the part of local communities," said Pierre Flabbee, an analyst with Kepler Capital Markets in Paris. "In any case, they can't count on the 'classic banks' because they're under regulatory pressure to boost capital and their own refinancing costs are too high."
Dexia's board is set to meet on Friday with Dexma on the agenda, a bank spokesman said, part of a flurry of activity aimed at resolving the municipal funding crisis that will also include a conference called by French President Nicolas Sarkozy.
In addition, French postal bank Banque Postale - due to lead a new public bank that would replace Dexia Credit Local - is holding an extraordinary board meeting on Friday.
Banque Postale would take a 65 percent stake in a new public bank for municipal funding, with CDC taking the other 35 percent, according to reports.
"The solution has to be twofold: it's certainly to redevelop a structure of credits for local communities and also to get the larger towns and cities to do more borrowing directly on the markets," Flabbee said.
TOXIC ASSET FEARS
Another source said Banque Postale would have the option of boosting its stake further over time by acquiring part of DCL's remaining stake.
CDC and Banque Postale both declined to comment.
Before the government rescue of Dexia, which is being broken up, DCL was the dominant French municipal lender, with its Dexma unit financing loans, in part, by issuing bonds.
Dexma has 80 billion euros ($106 billion) in loans on its balance sheet. Fears that some could prove toxic have made CDC officials baulk at an earlier plan under which the state bank would have taken a 65 percent stake.
But Flabbee said the municipal loan portfolio looked mostly safe, with the true dangers lying in other parts of Dexia's assets which are in "run-off" but could theoretically decline further in value.
While the disposal of the French municipal lending business solves a key part of the Dexia puzzle, the bank is still trying to sell other units such as its asset management business and Turkish arm Denizbank (DENIZ.IS).
That bank should have better luck raising bonds than Dexma since it will benefit from the backing of the French state, Flabbee said.
For Sarkozy, who faces an uphill re-election battle, France's municipal funding crisis is one more potential headache after the country lost its triple-A sovereign credit rating from Standard and Poor's and grapples with near 10 percent unemployment.
The effective nationalisation of Dexma -- CDC and Banque Postale are essentially controlled by the French state -- in some ways brings Dexia's municipal lending arm back to its roots.
The lender was created in 1996 from the merger of Credit Locale de France -- a former unit of the CDC which had been privatized -- and Belgian bank Credit Communal de Belgique.
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