Dexia limits year-end loss as funding costs fall

BRUSSELS Thu Feb 20, 2014 2:41am EST

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BRUSSELS Feb 20 (Reuters) - Nationalised Franco-Belgian financial group Dexia suffered a relatively mild 95 million euros ($130.7 million) net loss in the fourth quarter as it set aside money to cover its Puerto Rico exposure, but saw its funding costs fall.

The bank, about 95 percent owned by the French and Belgian governments, said on Thursday that brought its net loss in 2013 of 1.08 billion euros, an improvement from the 2012 figure of 2.9 billion euros.

The group, once the world's largest municipal lender, is no more than a penny stock investment, but its results matter because France, Belgium and, to a lesser extent, Luxembourg are guaranteeing its borrowings by up to 85 billion euros.

The states, which have already pumped in billions of euros to prop up Dexia, are threatened with losses that could derail their efforts to rein in their budget deficits.

Dexia said its net bank income was actually positive in the fourth quarter, after three straight negatives, as its liquidity requirements fell and used cheaper government funding guarantees and less of the more expensive central bank lending.

It also made one-off gains of 54 million euros related to the disposal of assets, including securitisation vehicles of Italian public lending arm Crediop.

For the year as a whole Dexia increased provisions for the U.S. public sector, setting aside $223.5 million to cover the risk of a default by the city of Detroit and Puerto Rico.

Dexia, now essentially a portfolio of loans and bonds in run-off, said it had cut its balance sheet to 223.4 billion euros, down by 134 billion since the end of 2012.

Dexia has benefited from a sharp reduction in the fee it has had to pay for government guarantees to 5 basis points per year from an average 85 basis points in 2012.

So far this year, the guarantees have cost it 157 million euros, compared with 743 million for the whole of 2012.

Dexia has been stripped of all its activities, including public sector lending and retail banking, after it failed to recover from the 2007-2008 credit crunch, which deprived it of access to short-term money to fund largely long-term loans. ($1 = 0.7271 euros) (Reporting By Philip Blenkinsop; editing by Robert-Jan Bartunek)

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