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Scenarios: No easy options for Dexia
October 4, 2011 / 1:50 PM / 6 years ago

Scenarios: No easy options for Dexia

PARIS (Reuters) - Shares of Franco-Belgian bank Dexia SA (DEXI.BR) were down about 15 percent after earlier falling as much as 38 percent on Tuesday as the French and Belgian governments considered several options for the group.

“BAD BANK”

Creation of a separate legal structure that would hold Dexia’s most toxic loans in order to isolate them from the rest of the group. Once spun off, the portfolio of toxic bonds of about 100 billion euros would no longer weigh on the financing of the group’s other units and could be sold off in chunks. Belgian finance minister Didier Reynders said on Tuesday he supports this option.

STATE GUARANTEES

While the government shareholders drag their feet when it comes to injecting new capital, France and Belgium said on Tuesday they would take all necessary measures to save Dexia and to guarantee its financing needs. It is not clear whether these guarantees refer to the bank’s capital, its debt or to possible future losses of a Dexia “Bad Bank.” A French source close to the matter said on Tuesday that the French and Belgian governments’ pledge of state support for Dexia did not mean a capital injection was in the works.

BREAK-UP

Several papers on Tuesday speculated that the group could be split up into several units along business lines. Dexia’s main units are a retail bank in Belgium, a private bank in Luxembourg, the financing of local communities in France and Turkish lender Denizbank (DENIZ.IS). Some of the bank’s specialist businesses such as asset management could also be sold. French daily Le Figaro said Standard Chartered (STAN.L) might consider buying Denizbank.

FRENCH CDC AND POST BANK TAKE ON LOCAL LOANS

Under this scenario, part of Dexia’s portfolio of credits to French local communities would be transferred to French state-owned bank CDC and La Banque Postale, the banking arm of the French post office. The financial strength of these two institutions would make a refinancing easier. Not everyone favors this option. The Force Ouvriere trade union said on Monday that the French post office should not be saddled with Dexia’s problems.

RECAPITALISATION, NATIONALISATION

This is what, according to one source close to the shareholders, the French and Belgian governments want to avoid. The rescue of Dexia in 2008 already cost 6 billion euros. Both governments are worried about the impact of a possible nationalization on their debt rating and fear negative public reaction. A capital injection is currently not under consideration, a French government source told Reuters on Tuesday.

SALE TO ANOTHER BANK

A sale of Dexia to another European banking group -- like failed Dutch-Belgian group Fortis was sold to French BNP Paribas (BNPP.PA) -- is unlikely. Analysts say Dexia is not sellable in its current state. A few years ago there were rumors about a possible tie-up with Societe Generale (SOGN.PA) but currently there is virtually no speculation about the sale of Dexia as a whole to another financial institution.

STATUS QUO

At the start of summer there was some hope the bank might muddle through, but it seems unlikely that the bank could manage to restructure successfully under current market conditions. If European leaders could quickly find a durable solution for the euro zone sovereign debt problems, this scenario could look feasible again.

BANKRUPTCY

Both governments have ruled out letting Dexia go bankrupt, as the bank is considered a systemic risk for the banking system. Links: Chart of Dexia’s assets compared to Belgium GDP:

Reporting by Julien Ponthus and Lionel Laurent, writing by Geert De Clercq; Editing by Christian Plumb and Elaine Hardcastle

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