Belgium, EU near end to talks on Dexia, may avert new bailout -sources

Thu May 22, 2014 2:00am EDT

* Belgium, EU discuss "special treatment" for moribund Dexia

* EU stress tests might point to need for further capital

* Belgium, France keen to avoid new bailout as Dexia winds up

By Laura Noonan and Philip Blenkinsop

DUBLIN/BRUSSELS, May 22 (Reuters) - Belgian officials could soon conclude talks with EU and euro zone financial regulators that might see France and Belgium avoid having to pour more public money into crippled bank Dexia if it fails an EU stress test on its balance sheet.

Sources familiar with the process told Reuters that talks on "special treatment" in the tests for publicly owned Franco-Belgian Dexia have intensified and are nearing their end. One said EU negotiators had already made unspecified concessions.

The Belgian and French governments have already bailed out Brussels-based Dexia to the tune of nearly 12 billion euros ($16.5 billion) since the financial crisis, taking control of it in the process, and are keen not to pump in more to a moribund institution that is already in the process of being wound up.

That EU-approved break-up plan makes Dexia unique among the 128 major euro zone banks being reviewed by the European Central Bank (ECB) and the 124 EU banks that are being subjected to stress tests by the European Banking Authority (EBA). Both bodies have said they would take account of that "special situation" in their assessments.

However, having made mention of that only in footnotes to documents, they have given no details and the comments from sources to Reuters this week are a first confirmation that talks are progressing between European officials and representatives from Belgium, whose central bank is Dexia's regulator. It is unclear what role, if any, French officials have had in the discussions.

Dexia's chief executive warned in March that the bank was at risk of failing the EU review and might need to raise capital again - money that would most likely come mainly from the French and Belgian treasuries which are currently guaranteeing almost 80 billion euros of Dexia's borrowings.

The stress tests and a related review by the European Central Bank have already prompted several banks to raise funds, most recently Deutsche Bank, which on Sunday announced plans to raise 8 billion euros. (ID:nL6N0O40WU)

One source familiar with the Dexia process said a concession had been made in recent days that would make the review of Dexia's books less onerous than the review of the other banks' the ECB is assessing. The source declined to give details.

A second source stressed that details of how Dexia would be treated had not yet been finalised.

Dexia, the ECB, EBA and Belgium's central bank all declined comment.

One of the sources who spoke to Reuters said that Dexia, formed by a Franco-Belgian merger in 1996, was a unique case and its treatment should not have implications for other banks which have been arguing against various elements of the stress tests.

Belgium, France and other shareholders put 6 billion euros into Dexia at the height of the global financial crisis in 2008. The bank subsequently secured guarantees for its borrowings from the two states and, to a lesser extent from Luxembourg. These now total some 79 billion euros.

Dexia has said it aims to reduce that to 45 billion euros by the start of 2015. Belgium and France paid in another 5.5 billion euros in total in 2012, effectively nationalising Dexia after consistent losses had eaten into its assets. ($1 = 0.7318 euros) (Editing by Alastair Macdonald)

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