October 4, 2011 / 5:56 AM / 8 years ago

Dexia to be split into 'good' and 'bad' parts-paper

* Healthy operations to be sold -paper

* “Bad bank” to be created, supported by Belgium, France - paper

BRUSSELS, Oct 4 (Reuters) - Franco-Belgian financial group Dexia will be split up and its ‘good’ assets could be sold by the end of 2011, according to a Belgian newspaper report published on Tuesday.

Dexia, which received a 6 billion-euro ($8 billion) bail-out at the height of the financial crisis in 2008, has come under increasing market pressure over its exposure to Greece and a board meeting went on into the early hours of Tuesday in an effort to resolve its problems.

Dexia financed a large portion of its long-term lending to public authorities with short-term borrowing, a business model which came under intense pressure when credit dried up in the 2008 financial crisis.

The first phase of the break-up plan for the bank consists of new loans to French municipalities being separated and put into a newly created French bank, Belgian daily newspaper De Standaard said on Tuesday, citing sources.

Healthy operations, such as Dexia’s Turkish unit Denizbank, Dexia Asset management and its Canadian joint venture will be sold separately, the report said.

Dexia Bank Belgium could also be sold by the end of 2011, while operations such as Dexia Credit Local, Italian Crediop and Spanish Sabadell would be put into a “bad bank”, which would receive a guarantee from Belgium and France, according to the report.

Dexia held 3.8 billion euros of Greek sovereign bonds at the end of June and had a credit risk exposure to the country of 4.8 billion euros, both bigger than the group’s market capitalisation of 2.5 billion.

Dexia already took a 338 million-euro hit to cover a 21 percent loss on its Greek exposure in July, but with market prices indicating that investors could suffer a loss of 50 percent or more on Greek debt the group’s final bill could be considerably higher. (Reporting By Robert-Jan Bartunek; Editing by Greg Mahlich)

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