AppId is over the quota
AppId is over the quota
October 06, 2011, 9:48 PM EDT By Fabio Benedetti-Valentini
(Updates with S&P downgrade from third paragraph.)
Oct. 7 (Bloomberg) -- Dexia SA inched toward a breakup as France, Belgium and Luxembourg sought to protect their local units from the sovereign debt crisis threatening the heart of Europe’s financial system.Luxembourg said an investor is interested in buying its local unit, Belgian Prime Minister Yves Leterme said he’ll do whatever it takes to safeguard the bank in Belgium, and a plan emerged to take over the French municipal lending arm. The board of Dexia meets tomorrow to discuss the options.The stock dropped 17 percent yesterday on concern that the breakup will leave shareholders with little of value, while Standard & Poor’s downgraded the credit rating for three units, citing the group’s limited access to wholesale funding markets. Hurdles to an agreement remain as Belgium and France wrestle over responsibility for Dexia’s troubled assets, which could total as much as 190 billion euros ($256 billion).“It’s complicated for the states to reach an accord,” said Benoit Petrarque, an analyst at Kepler Capital Markets in Amsterdam. “There are budgetary constraints and no one wants to invest capital.”Dexia’s breakup, three months after it got a clean bill of health in European Union regulators’ stress tests, has brought Europe’s banking crisis from the continent’s periphery to its center. The bank’s short-term funding evaporated as Europe’s sovereign debt crisis worsened, forcing France and Belgium to come to its rescue three years after they injected capital to save the company during the financial crisis of 2008.The lender’s Dexia Credit Local, Dexia Bank and Dexia Banque Internationale a Luxembourg units had their ratings lowered to A-/A-2 from A/A-1 by Standard & Poor’s Ratings Services. The ratings are on credit watch with “developing implications,” S&P said.‘Very Sensitive’“The fair distribution of the burden is a very sensitive and crucial element in the negotiations,” Belgium’s Leterme said on RTL radio yesterday. “To save Dexia, we need a fair division of responsibility.”Dexia shares were suspended in Brussels yesterday and will resume trading on Oct. 10. The stock has dropped 42 percent this week and more than 90 percent since the bailout in 2008.Under the plan being considered by France and Belgium, Dexia would set up a “bad bank” for its troubled assets, hive off its French municipal loan book into a venture with state- owned La Banque Postale and Caisse des Depots et Consignations, and seek buyers for units such as its Belgian bank, Denizbank AS of Turkey and its asset-management division.‘Forced Sale’In the first step toward a dismantling, Dexia said yesterday an investor is interested in its profitable retail and private banking unit in Luxembourg. Belgian daily L’Echo reported that a Qatari sovereign wealth fund was in discussions to buy the unit, Dexia Banque Internationale a Luxembourg, for 900 million euros, without saying where it got the information. Luxembourg plans to keep a minority holding, Finance Minister Luc Frieden told reporters yesterday.That announcement set off concern that Dexia’s most valuable assets will be sold at fire-sale prices to international buyers in response to a temporary funding squeeze.Groep Arco, Dexia’s second-biggest Belgian shareholder, said yesterday that it “opposes a forced sale of good units of the group at very low prices to foreign entities.”In France, state-owned CDC and La Banque Postale may join with Dexia to create a new company to take over the French municipal lending arm, according to a statement yesterday from the postal union, whose representatives attended a board meeting where the plan was presented. Paris-based La Poste, the parent of Banque Postale, declined to comment, as did CDC and Dexia.“On the French side, the worry is to ensure the financing of local governments in the next few months, so there is no urgency,” said Petrarque. “But the Belgian side needs to move quickly to prevent an accelerating outflow of deposits.”--With assistance by John Martens in Brussels. Editors: Frank Connelly, Vidya Root
To contact the reporter on this story: Fabio Benedetti-Valentini in Paris at fabiobv@bloomberg.net
To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net
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