- Belgium's nationalisation of the domestic operations of Dexia formally agreed
- Brussels will pay €4bn to take over Dexia Bank Belgium
- France, Belgium and Luxembourg will jointly underwrite Dexia's financing needs up to €90bn for 10 years
Belgium's nationalisation of the domestic operations of Dexia was formally agreed in the early hours of Monday by the bank's board of directors and the Belgian government, along with state guarantees worth €90bn ($120bn) to finance the rest of the group.
Brussels will pay €4bn to take over Dexia Bank Belgium, which includes a large retail bank in a group which is otherwise focused on lending to local governments. The forced divestment is the first step in the dismembering of the Franco-Belgian bank after it fell victim to a liquidity squeeze prompted by the eurozone debt crisis.
Dexia's management was instructed by its board to start negotiations to pair its French municipal loans business with the Banque Postale, a bank tied to the postal system, and the Caisse des Dépôts et Consignations, the French sovereign wealth fund that owns stakes in both Postale and Dexia.
France, Belgium and Luxembourg will jointly underwrite Dexia's financing needs up to €90bn for 10 years, in a repeat of 2008 when the three governments stepped in with €150bn of guarantees to tide over Dexia after it ran into financing difficulties.
Belgium will provide 60.5 per cent of the guarantee, or €54bn, with France up for 36.5 per cent and Luxembourg 3 per cent, it was agreed after discussions between the French and Belgian prime ministers on Sunday.
The guarantees will help finance what remains of Dexia after the Belgian and French spin-offs, which are expected to be followed by other divestments including Dexia's stake in DenizBank, a Turkish lender, and its asset management business. Talks to sell the Luxembourg unit to a consortium led by the Qatari sovereign wealth fund are under way.
The remaining "bad bank" will consist of a bond portfolio worth around €100bn, which has weighed down Dexia's balance sheet since the 2008 bail-out.
Its biggest problem then was exposure to subprime US housing loans. This time, a €21bn portfolio of souring eurozone debt, including that of Greece and Italy, helped depreciate Dexia's capital base and worry potential creditors.
Belgium's actions echo the downfall of Fortis, which in 2008 was rapidly nationalised before being sold off to BNP Paribas.
"We are happy to have been able to free Dexia Bank Belgium of any links and any risk that might have come from its holding by Dexia SA [the listed entity]," said Didier Reynders, Belgian finance minister.
The bail-out negotiations were made more complicated by fears on Belgium and France's side about the impact that new liabilities contracted to save the bank could have on their public finances.
The French government is said to be concerned about how the Dexia lifeline could affect its triple-A credit rating, which allows it to borrow cheaply on international markets and gives it added clout in eurozone bail-out negotiations.
Belgium on Friday was placed on a negative ratings watch by Moody's, which cited the banking situation as one factor for a possible future downgrade. The spread of Belgian 10-year bonds compared with benchmark German paper, a key indicator of perceived risk, stands at slightly less than 2 per cent, up from 1 per cent at the start of the year.
Dexia shares were suspended by the Belgian regulator, the CBFA, last Thursday, due to excessive volatility linked to uncertainty over the future of the group. A planned delay to the resumption of trading due Monday was possible, it said overnight.
● KBC, the Belgian banking group, accepted a €1bn offer for its Luxembourg-based private banking arm, KBL. Precision Capital, a Qatari-backed fund, is the second potential suitor for KBL after a 2010 planned sale to India's Hinduja Group fell through because of regulatory concerns.
KBL has assets under management of €47bn.
The price is lower than the €1.35 price tag to Hinduja, partly due to faltering market conditions but also hit by earlier capital releases. KBC said it would receive a €700m capital boost.