Dexia's FSA 3rd Quarter Hit by Mark-To-Market Loss

BRUSSELS (Reuters) - Financial services group Dexia's (DEXI.BR)(DEXI.PA) U.S. subsidiary Financial Security Assurance (FSA) reported a sharp third-quarter loss, hit by mark-to-market losses on its derivatives portfolio.

FSA said it made a net loss of $121.8 million because of unrealized mark-to-market losses of $190.9 million.

Mark-to-market valuations are an accounting principle used chiefly for derivative portfolios. At the end of a trading day, a contract such as a futures contract is marked to its present value.

Dexia FSA Chairman and Chief Executive Robert P. Cochran said he expected these losses to be reversed within two years.

"Given the relatively short lives of the financial products and insured CDS (credit default swaps), with no change in current market spreads and no realized losses, a significant portion of mark-to-market reversal should occur in the next two years," he said.

Analysts had widely expected that third-quarter earnings from banking groups such as Dexia would include steep mark-to-market losses, but stressed that while these appear to be losses they should be recouped when a contract matures.

Dexia reports its third-quarter figures on Nov. 16.