LONDON/BRUSSELS Dexia SA (DEXI.BR) shareholders have been left holding little more than an option -- of dubious value -- on the sale of a few remaining orphan businesses after the weekend bailout of the Franco-Belgian bank.
Belgium paid 4 billion euros ($5.5 billion) for the failed bank's healthy domestic arm, leaving the Dexia listed group with a number of smaller units, as well as a large bond portfolio in need of a government life support system.
This listed entity has been dubbed a "bad bank" that will gradually be wound down. Bankers say any gains from the sale of the remaining units would be likely to go toward propping up capital levels, or be needed to pay for funding guarantees, leaving little for shareholders.
"The bank is dead. It's over," said a source familiar with Dexia's break-up, asking not to be named.
"This bad bank is still going to be a bank with a license, so they need a Core Tier 1 (capital ratio for) their financing even if they not produce new loans," said a banker familiar with the situation, requesting anonymity.
Dexia shares lost 36 percent when they reopened after the bail-out on Monday, closing 5 percent lower, reflecting fears that shareholders -- including Belgian local governments and trade unions -- are facing substantial losses.
The issue is significant, because Europe's leaders have given themselves until the end of the month to find a way out of the continent's debt crisis and will in all likelihood come up with some means to pump more capital into banks.
But the last-minute rescue of Dexia shows concerns about funding and choppy stock prices can force more speedy action, and markets are wondering whether it was the first of many needing urgent taxpayer support.
Earlier bail-outs in the credit crisis shows politicians do not care much about shareholders in such cases, as evidenced by the wave of litigation that followed the 2008 rescue by the Netherlands and Belgium of lender Fortis.
"(The Fortis shareholders) felt they had been wiped out and in this case it's a little bit the same. But it's better to have shareholders wiped out than the clients of these banks, which are people voting," the banker said.
STOP THROWING SHOES
Shareholders quickly started protesting after the Netherlands, Belgium and French bank BNP Paribas (BNPP.PA) divided up the Fortis assets, in a row that ultimately brought down the Belgian government.
Yves Leterme, currently Belgium's caretaker prime minister, was forced to resign in December 2008 after accusations that one of his officials tried to persuade judges not to block the bank's break-up.
Shareholders eventually secured better terms, after a series of legal battles and heated investor meetings -- at one of which shoes were famously thrown at the board.
The sale of the Dexia's Belgian arm -- which has deposits of 80 billion euros from 4 million customers -- to the Belgian government protects any future buyer of that business from having to face such scenes.
"No buyer would want to get potential litigation with Dexia shareholders. By putting the state in between, there's no way the buyer can have problems," the banker said.
Deutsche Bank (DBKGn.DE) and unlisted Rabobank RABO.UL from the Netherlands have been mooted as possibly interested in the Belgian operations. Any surplus over the 4 billion euro Brussels paid for the unit would go to Dexia shareholders.
The faster the sale, the higher the pay-out.
Other assets are also on the block. Dexia is planning to hold an auction for its fast-growing Turkish division DenizBank (DENIZ.IS) in coming weeks. Shares in the separately listed entity have gained more than 30 percent this week.
Dexia has rushed into a sale of its Luxembourg-based wealth management business Dexia Banque Internationale Luxembourg (BIL) to Qatar's al-Thani royal family, and will also sell its asset management activities.
Royal Bank of Canada (RY.TO) is likely to buy out Dexia from their RBC Dexia Investor Services joint venture, with Luxembourg's finance Minister Luc Frieden saying that talks were at a "very advanced stage."
Lastly, it is talking to French state bank Caisse des Depots et Consignations (CDC) and La Banque Postale to offload at least part of Dexia Credit Local, its French unit that provides funding to the French local public finance sector.
But it will need much of that capital to support its remaining bond portfolio, which was worth 95.3 billion euros at the end of June and some 75 to 80 billion euros now, and to pay for state guarantees for its funding.
"The interesting question is now to see what will be the cost of the state guarantees and will the proceeds from the disposals be sufficient to cover it in the long run?" said another banker familiar with the situation.
($1 = 0.732 Euros)
(Additional reporting by Sophie Sassard; Editing by Alexander Smith)