December 21, 2012 / 4:31 PM / 5 years ago

Dexia investors OK state bailout to avoid liquidation

BRUSSELS (Reuters) - Dexia shareholders accepted on Friday the near-total nationalization of their group and voted against a liquidation that could have caused a Lehman-style shockwave across Europe.

France and Belgium are set to own almost 96 percent of Dexia, with the free float slipping to 1.9 percent from 30.4 percent, after the two nations agreed to keep the lender afloat with 5.5 billion euros ($7.3 billion) of fresh funds.

Shareholders faced a stark choice - to liquidate the company immediately or continue its pared down activities while accepting their interests would be a tiny fraction of what they held before.

Dexia warned that opting for a liquidation could have led to a Lehman-like knock-on effect in Belgium, France and Europe’s financial system. Chief Executive Karel De Boeck said it could have cost Belgium and France, as guarantors for Dexia’s borrowings, 40 to 50 billion euros.

Dexia, once the world’s largest municipal lender, came unstuck when the credit crunch struck, depriving the group of short-term money it relied upon to fund largely long-term loans.

In a meeting lasting nearly four hours, a number of small shareholders complained that they were being robbed without compensation. Dexia shares, worth over 22 euros in May 2007, were trading at just 0.09 euros on Friday.

“This is a choice between syphilis and gonorrhea, between the guillotine and the electric chair, between the plague and cholera,” said lawyer Geert Lenssens, who represents a number of minority shareholders.

Dexia, he said, was a “financial Twin Towers, like Fortis” though not one caused by terrorists, but by “gangster” bankers.

A dozen protesters stood outside the conference center handing out leaflets at the start. A few police milled around the lobby.

In the end 99.4 percent of votes present were in favor of continuing the group’s activities and accepting the capital increase. The majority of Dexia was already in the hands of public or semi-public bodies.

European Competition Commissioner Joaquin Almunia said on Thursday that he would recommend his Commission colleagues approve Dexia’s new bailout plan. They will meet on December 28.

In total, Almunia said Dexia will have received 10.9 billion euros of new capital, 3.2 billion euros of aid for impaired assets and guarantees on its borrowings. On Thursday, Dexia was drawing on 73 billion euros worth of those guarantees.

“The orderly resolution plan of Dexia enables to prevent a disorderly liquidation of Dexia which would have substantial negative effects on financial stability. It allows for the controlled winding down of the largest bad bank in the EU,” Almunia said.

Dexia Chairman Robert de Metz said that was not a fair description, with 88 percent of Dexia’s holdings rated investment grade. Dexia’s problem was not the quality of its holdings, but its financial needs, he said.

Dexia’s balance sheet was 650 billion euros at the end of 2008 and it required 260 billion euros of short-term financing.

Dexia plans to reduce its assets to 150 billion euros in 2020 from 350 billion euros now and its use of state guarantees for its borrowing by 45 percent in four years. On Thursday, those guarantees totaled 73.2 billion euros.

Editing by Helen Massy-Beresford

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