May 11, 2010 / 3:56 PM / 10 years ago

UPDATE 2-Dexia reveals 3.7 bln euros Greek sovereign exposure

* Q1 net profit 216 mln euros vs Reuters poll 194 mln

* Books pretax capital gain of 153 mln euros

(Adds details, analyst comment)

By Philip Blenkinsop and Nina Sovich

BRUSSELS/PARIS, May 11 (Reuters) - Franco-Belgian financial services group Dexia SA DEXI.BR reported a higher than expected first-quarter net profit, boosted by a one-off capital gain, and revealed its exposure to Greece.

The company, kept afloat by a bailout and state guarantees in late 2008, said in a statement on Tuesday its exposure to Greek sovereign debt was 3.7 billion euros ($4.7 billion), with little to no exposure to Greek banking, local authorities and corporates.

It added its insurance companies had exposure to a further 1.2 billion euros of Greek sovereign debt, but this was less of an issue for Dexia itself.

Dexia had a 19 billion euro exposure to sovereign bonds at the end of 2009, of which 18 billion euros rated AA or below. It did not give a breakdown per country.

The company’s net profit declined by 13.9 percent in the first quarter to 216 million euros, above the 194 million euro average in a Reuters poll of seven banks and brokerages.

The company, once the world’s largest lender to municipalities, booked a pretax 153 million euro gain from the disposal of its stake in Assured Guaranty (AGO.N), the purchaser of Dexia’s loss-making U.S. bond insurer FSA last year.

It also took 165 million euros in impairments for its financial products portfolio and 56 million for its Turkish banking unit Denizbank, a figure lower than in the fourth quarter of 2009.

LEGACY BUSINESS

Jaap Meijer, analyst at Evolution Securities, said the core division containing Dexia’s retail banking, public finance and investor services businesses had performed more or less in line with expectations.

Its legacy division, including a bond portfolio being run down and loans outside core countries, had performed slightly better, Meijer said, with the one-off capital gain and perhaps reduced losses from running off fewer bonds.

He said he had pencilled in 3 billion euros for Greek sovereign debt exposure.

Dexia said it was on track to exit state guarantees fully by the end of June. It had already raised 31 billion euros in medium- and long-term debt, more than 80 percent of its annual need. Some 20.5 billion euros had been with state support, 7.7 billion with covered bonds.

Dexia suffered during the financial crisis since a large part of its long-term lending relied on short-term interbank borrowing — a market that dried up during the credit crunch.

It received a 6.4 billion euro bailout from France, Belgium, Luxembourg and key shareholders in September 2008 and later won state guarantees for its new borrowing and potential losses from its “Financial Products” portfolio.

Dexia has pledged to reduce its balance sheet by 35 percent by 2014 with the sale of its public financing activities in Italy, Spain and Slovakia and insurance in Turkey, while keeping its Belgium, France and Luxembourg core, and growth engine Turkish banking arm Denizbank.

The company plans to reduce its costs by 15 percent by 2011, a total of 600 million euros. (Editing by David Holmes) ($1=.7872 Euro)

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