Bloomberg News

Dexia Falls After Exane Cuts Stock on Writedown Risks (Update2)

June 10, 2008

Dexia SA (DEXB) fell to a four-year low in Brussels trading after the world's largest lender to local governments was downgraded by Exane BNP Paribas, which cited the risk of further writedowns at the company's bond insurance unit.

Dexia declined 2.6 percent to 13.35 euros, its lowest since July 2004. The stock has fallen 23 percent this year, valuing the company at 15.4 billion euros ($23.8 billion).

Dexia's FSA unit is the only bond insurer with a AAA credit rating and a stable outlook, allowing it to increase market share from U.S. municipalities in the first quarter, Exane BNP analyst Eric Hazart wrote in a note today. Even so, FSA may face further writedowns tied to home equity lines of credit as the U.S. mortgage market deteriorates, the analysts said.

At Dexia ``a capital increase seems likely if FSA is further pummeled by an ongoing deterioration of the U.S. housing market,'' Hazart wrote. Exane BNP Paribas analysts downgraded Dexia to ``underperform'' from ``outperform'' with a new price target at 15 euros, down from 21 euros.

A spokeswoman for Dexia in Paris didn't immediately returned calls seeking comment.

CDO Guarantees

FSA had a $422 million net loss in the first quarter, it said May 14. Dexia's U.S. bond insurance unit in the first quarter had a $195 million expense to cover expected claims on bonds backed by home-equity loans and a $318 million unrealized loss related to guarantees of collateralized debt obligations backed by corporate debt, FSA said last month.

MBIA Inc. (MBI:US) and Ambac Financial Group Inc. (ABKFQ:US), the world's largest bond insurers, had their AAA financial strength ratings cut by Standard & Poor's this week. MBIA and Ambac have raised $4.1 billion combined in the past six months to cover potential losses tied to the U.S. subprime mortgage market crisis.

Dexia acquired FSA in 2000 for $2.6 billion and put $500 million of fresh capital into the New York-based company in February. FSA generates about 12 percent of Dexia's earnings. Dexia Vice Chairman Jacques Guerber said in March that FSA aims to capture at least half of all new U.S. bond insurance this year.

To contact the reporters on this story: Frank Connelly at; Fabio Benedetti-Valentini in Paris at

To contact the editors responsible for this story: Mike Anderson; Frank Connelly at

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