* Dexia board meeting expected to meet on Sunday
* Moody's warns Belgium of possible bond ratings downgrade
* France, Belgium arguing over who will pay to salvage Dexia
* Dexia is first European bank meltdown amid euro zone
By Christian Plumb and Philip Blenkinsop
PARIS/BRUSSELS, Oct 8 France and Belgium are
expected to finalise plans this weekend to break up Dexia
, which helps finance hundreds of towns in both
countries and became the first European bank to fall victim to
the euro zone crisis.
Dexia, whose board is likely to meet on Sunday, was forced
to seek government help earlier this week after a liquidity
crunch hobbled the lender and sent its shares into a tailspin.
The bank's implosion has added to investors' worries about
the solidity of European banks and has coincided with increased
European Union talk about coordinated action to recapitalise
banks across the continent.
The burden of bailing out Dexia also prompted Moody's to
warn Belgium late on Friday that its credit rating could fall.
The ratings agency also cited the prospect of higher funding
costs and weak economic growth as reasons for putting Belgium's
Aa1 government bond ratings on review for possible downgrade.
France and Belgium have guaranteed Dexia's
financing, paving the way for a new rescue for the bank, which
is struggling to wind down billions of euros in toxic assets
accumulated during an overambitious expansion plan.
But there were signs that the details of the rescue were
proving troublesome, as a Dexia board meeting originally
scheduled for Saturday slipped back to Sunday.
Still, a source close to the talks was confident the bank's
future would be determined before the opening of markets on
"Dexia's funeral will be announced on Sunday," the source
Some investors view the response to Dexia's woes
as a test of European governments' ability to take decisive
action to rescue banks if the eurozone debt crisis worsens.
"The need to rescue Dexia is symbolic of the uncertainty
that characterises the banking sector," said Eric Galiegue,
president of Valquant, an independent research firm. "Who would
have imagined that a bank so linked with European construction
would end up being dismantled?"
French President Nicolas Sarkozy was due to meet German
Chancellor Angela Merkel on Sunday in Berlin amid reports of
differences on how to use the euro zone's financial firepower to
counter a sovereign debt crisis that threatens the global
There were also clashes within Belgium, between the federal
government and its regions, over Dexia's fate, with the central
government favouring a nationalisation of its Belgian retail
unit but facing stiff opposition from regions who fear the loss
of 1 billion euros they contributed to an initial Dexia rescue.
An agreement may have been found late on Friday, under which
the federal government would agree to let regions back into the
capital of DBB, Dexia's Belgian retail lender, through a rights
issue at a later stage, Belgian newspaper L'Echo reported.
"This Belgian-Belgian arrangement should allow to finalise
this weekend the rescue of Dexia by Belgium and France," L'Echo
said on its website on Saturday.
Citing no sources, L'Echo also said several international
banks, including Deutsche Bank , Rabobank ,
Credit Mutuel and BBVA , had "shown interest in DBB."
Assuming those differences in Belgium are resolved, Paris
and Brussels still need to agree on how much each will
contribute to a broader Dexia overhaul.
That overhaul will probably see the sale of healthy units
such as Denizbank in Turkey and a takeover of its French
municipal finance arm by two French state banks, including
Dexia's largest shareholder, Caisse des Depots and
Consignations, which has a 17.6 percent stake.
Belgian and French financial experts began talks on
Thursday, but politicians from each country have yet to enter
Dexia's shares have been suspended since Thursday afternoon
and are down 42 percent since last Friday.
The bank's meltdown has worried some of its Belgian
depositors, who earlier this week overwhelmed the bank's
On a broader level it has heightened concern about other
European banks' solidity, though Societe Generale
Chief Executive Frederic Oudea told Reuters in an interview on
Friday that Dexia's circumstances were specific to itself, and
"people should not expect further problems with the system".