Bloomberg News

Dexia Plunges in Brussels on Concern Second Rescue Required

October 03, 2011

(Adds board meeting from second paragraph.)

Oct. 3 (Bloomberg) -- Dexia SA, the lender rescued by France and Belgium in 2008, plunged 10 percent in Brussels on concern the bank is struggling to fund itself and will need a second bailout.

The company is holding an emergency board meeting tonight, De Tijd reported, without saying where it got the information. The shares fell 15 euro cents to 1.30 euros, cutting Dexia’s market value to about 2.5 billion euros ($3.4 billion).

The bank in August posted a 4.03 billion-euro 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.

“There’s speculation that Dexia may be on the receiving end of a bailout,” said Jawaid Afsar, a trader at Securequity Ltd. in Sheffield, England. “The big worry for Dexia shareholders is a massive dilution of shares.”

The board will weigh a break-up of the bank, including setting up a so-call bad bank, the Financial Times reported today, without saying where it got the information. Funding for French local governments would be provided in partnership with France’s Banque Postale SA and the Caisse des Depots et Consignations, the newspaper reported. The bank’s remaining operations would be sold to bolster capital, the FT said.

Funding Shortage

Dexia’s spokesman Benoit Gausseron didn’t immediately reply to a message left on his mobile phone. The lender relied on 34 billion euros of European Central Bank funding at the end of June. Chief Executive Officer Pierre Mariani has sought to reduce the need for funding as Europe’s sovereign-debt crisis spreads to Italy and Greek bondholders take losses on their holdings.

The bank’s commitments in the U.S. include about $14 billion of standby bond purchase agreements -- guarantees to buy municipal bonds if investors want out -- and guaranteed investment contracts, or GICs, which municipalities buy with money raised from bond sales pending use for schools, roads and other public works.

“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.

Moody’s Review

The lender also had the long-term deposit and debt ratings and the short-term ratings of its three main operating units -- Dexia Bank Belgium, Dexia Credit Local and Dexia Banque Internationale a Luxembourg -- put on review for downgrade today by Moody’s Investors Service on concerns that it’s struggling to fund itself.

“Dexia has experienced further tightening in its access to market funding,” Moody’s said in a statement. “Dexia’s collateral postings have increased due to substantial market volatility.”

Dexia spokesman Gausseron declined to comment on Moody’s review.

--With assistance from Maud van Gaal in Amsterdam and Fabio Benedetti-Valentini in Paris. Editors: Edward Evans, Keith Campbell.

To contact the reporter on this story: Stephen Taylor in Paris at Staylor8@bloomberg.net.

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net; Edward Evans at eevans3@bloomberg.net


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