Bloomberg News

Dexia Leads Europe Banks Lower on Sovereign-Debt Worries

October 03, 2011

(Adds 2008 Fed loans in eighth paragraph, Luxembourg finance minister’s comment in ninth.)

Oct. 3 (Bloomberg) -- Dexia SA and Societe Generale SA led a slide among European financial shares amid growing concern that banks are having trouble funding themselves.

Dexia, the municipal lender rescued by France and Belgium in 2008, fell as much as 14 percent in Brussels trading, the most since March 2009, on concern it will need a second bailout after Moody’s Investors Service placed its operating units on review for a possible downgrade. Paris-based Societe Generale fell as much as 9.8 percent.

Dexia faces “concerns about further deterioration in the liquidity position of the group in light of the worsening funding conditions in the wider market,” Moody’s said. Belgian and French finance ministers plan to meet today to discuss financing options for the lender, Les Echos reported on Sept. 30, citing unidentified people involved in the talks.

“The big worry for Dexia shareholders is a massive dilution of shares,” said Jawaid Afsar, a trader at Securequity Ltd. in Sheffield, England. “There’s speculation that Dexia may be on the receiving end of a bailout. Dexia is the most exposed, and the news of a possible downgrade by Moody’s does not help.”

Dexia spokesman Benoit Gausseron declined to comment when reached by phone.

‘Extremely Complicated’

“Dexia is an extremely complicated file,” said Benoit Petrarque, an Amsterdam-based analyst at Kepler Capital Markets. “The fact that two countries are involved, both under pressure from rating agencies, makes it even more difficult. We are not in 2008 anymore, when you could just inject multibillions of cash.” Petrarque has a “hold” recommendation on the shares.

In August, Dexia posted a 4.03 billion-euro ($5.3 billion) second-quarter loss, the largest in its history, as the firm wrote down its holdings of Greek debt. The Brussels- and Paris- based lender said at the time that U.S. investors’ concern about the European sovereign-debt crisis had limited its ability to borrow dollars in the money market.

Dexia relied on 34 billion euros of European Central Bank funding at the end of June. During the 2008 credit crisis, the bank was among the biggest European recipients of emergency loans from the U.S. Federal Reserve, measured by peak balances, according to a compilation of data by Bloomberg News.

Regulatory Scrutiny

Luxembourg Finance Minister Luc Frieden said there’s no need for “special worry” about Dexia’s financial position. Authorities are monitoring the bank closely, he told reporters in Luxembourg today.

Dexia fell 14.7 cents, or 10 percent, to 1.30 euros in Brussels, while Societe Generale tumbled 5.1 percent in Paris. KBC Groep NV was among the biggest decliners, down 8.8 percent. The 50-member Stoxx 600 Banks Index slid 2.8 percent today after falling 28 percent in the third quarter, its biggest quarterly slide since 2008.

“The current level of bank shares already seems to imply recapitalizations,” Petrarque said. “The news flow in October will be extremely important, while the big question is whether it will be enough to convince investors.”

At current stock levels, “you can start thinking about bottom-fishing, focusing on banks with strong cash flows and not too much leverage,” Petrarque said.

--With assistance by Adam Haigh in London and Fabio Benedetti- Valentini in Paris. Editors: Keith Campbell, Francis Harris.

To contact the reporter on this story: Maud van Gaal in Amsterdam at mvangaal@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net


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