S&P cuts Dexia ratings, cites U.S. housing sector woes
NEW YORK, Sept 29 (Reuters) - Standard & Poor's on Monday cut its long-term counterparty credit ratings on Belgium-based banking group Dexia S.A. (DEXI.BR) and its core entities, citing the group's exposure to the U.S. housing downturn.
S&P cut the ratings on Dexia, Dexia Credit Local, Dexia Bank S.A. and Dexia Banque Internationale a Luxembourg, by one notch to 'AA-', the fourth-highest investment grade in its scale.
The move "reflects our view that the continued deterioration of the U.S. housing market and related loss in value of a variety of structured credit securities will further impair Dexia's earnings and internal capital generation," analyst Taos Fudji said in a statement.
Belgian regional governments earlier agreed in principle to participate in action to strengthen the bank's capital, Belgian Prime Minister Yves Leterme announced.
The accord came after the bank's shares shed 29.7 percent of their value in Brussels earlier in the day, hit by a report that the company planned a capital increase. A Dexia spokesman declined to comment on the report in France's Le Figaro newspaper but said the bank's liquidity was "very healthy."
The cost of insuring Dexia's debt through credit default swaps has more than doubled in the past month. For more, see [nLT39281.
Dexia's exposure to the U.S. housing market is through its subsidiary, the monoline insurer Financial Security Assurance Inc (FSA).
FSA has backed about $18 billion of non-agency U.S. mortgage-linked structured credits. The firm also has a $17.3 billion financial products portfolio, for which Dexia has assumed direct credit and liquidity risk.
Dexia also manages a 72.7 billion euro credit spread portfolio, 39 percent of which is invested in European and U.S. financial institutions.
"The portfolio is of high credit quality, but could be susceptible to extreme market developments, as illustrated by its estimated EUR 350 million loss on exposures to the former Lehman Brothers Holdings Inc," said Fudji.
The outlook remains negative, meaning S&P could cut the ratings again within the next two years. (Reporting by Ciara Linnane; Editing by Dan Grebler)
