November 25, 2011 / 5:42 PM / 6 years ago

UPDATE 1-Dexia CEO takes aim at "pirates" hijacking euro debt

* Calls ratings agencies ‘thermometers that give a fever’

* Dexia waiting on details of guarantee scheme (Adds further comments, background)

By Ben Deighton

BRUSSELS, Nov 25 (Reuters) - The Chief Executive of troubled Franco-Belgian bank Dexia on Friday accused speculators of using underhand methods to try to force a default in sovereign bonds, a practice he compared to 17th-century piracy.

Pierre Mariani has been forced to seek government help for Dexia, after it was hit by the dwindling value of its holdings of European government bonds. At a seminar in Brussels, he spoke out against speculators who, he said, buy insurance against bond defaults, and then try to cause a default.

“We are pretty much in that situation, where there are bad people who buy these insurances, and behind they go and finance pirates who will allow them to make a lot of money on it,” Mariani said.

“We are in a mechanism which is what the king of England banned in the 17th century,” he said. “That’s to say the naked insuring of shipping cargoes ... because there were bad people who subscribed to the insurance even though they had no stake in the ships in question and who paid pirates to sink them.”

Analysts said the criticism of default insurance wasn’t totally unreasonable, but that it showed that Mariani was feeling the strain of the attention that has been focused on him recently.

“I can imagine this guy’s under a lot of stress the last few days,” said one analyst at a major European bank.

Dexia remains on financial life support while it waits for Belgium, France and Luxembourg to finalise the details of a guarantee package promised in October.

That package came after Dexia, facing the threat of collapse, agreed to the nationalisation of its Belgian banking division. Under the package France, Belgium and Luxembourg committed to provide the bank with 90 billion euros ($120 billion) in state guarantees.

However, details of this deal have not yet been finalised. Until they are, the bank is relying on expensive emergency central bank funding.

On Friday, Mariani also took aim at ratings agencies, calling them “thermometers which give a fever”.

Dexia’s problems came from a business model established in the mid-1990s, which relied on short-term funds to finance long-term loans to public authorities.

In July, Moody’s cut its long-term rating for Dexia’s three main entities from A1 to A3, citing the bank’s short-term funding reliance as well as potential losses on assets Dexia planned to sell.

When agencies put Dexia’s short-term rating under revue, significant amounts of financing disappeared, Mariani said.

Mariani and Dexia’s chairman, Jean-Luc Dehaene, have defended their record. They were appointed in October 2008, a week after Dexia had received a 6 billion-euro bailout -- equivalent to some $8.3 billion at today’s exchange rate -- from key shareholders.

Earlier this month, Dehaene likened himself and Mariani to firefighters -- responsible for trying to put out the flames, but not for the fire itself. “We cannot be held responsible for the ruins,” he told a committee of Belgian lawmakers.

Belgian Prime Minister Yves Leterme has also said that Dexia’s troubles were caused by a business model decided in the mid 1990s.

Since Wednesday Dexia’s share price has risen by almost 60 percent to 0.4 euros on hopes that a temporary guarantee might be signed shortly. However this remains far below its high for the year of 3.4 euros. ($1 = 0.7506 euros) (Reporting By Ben Deighton; Editing by Sebastian Moffett and Will Waterman.)

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