Bloomberg News

Dexia’s Equity Plunges 84% on Bank Sale, Decline in Bonds

November 09, 2011

(Updates with shares in second paragraph, fund manager’s comment in third, Greek losses in fourth.)

Nov. 9 (Bloomberg) -- Dexia SA, the lender being broken up after running out of short-term funding, said shareholder equity shrank 84 percent after the nationalization of its Belgian bank unit and declines in the value of government bond holdings.

The shares plunged after Dexia said today that its own funds fell to 1.13 billion euros ($1.5 billion) at the end of September from 6.95 billion euros on June 30.

“They’re carrying out their own labors of Heracles” by seeking to dispose of assets and by taking losses on Greek sovereign bonds, said Francois Chaulet, who helps manage 250 million euros at Montsegur Finance in Paris and doesn’t own shares in Dexia. “But is anything left for shareholders?”

The decline in shareholder equity assumes the sale of Dexia Bank Belgium NV had taken place on Sept. 30. Dexia lost 4.07 billion euros on the sale of the Belgian bank unit and wrote down Greek debt and related derivatives by 2.32 billion euros.

Dexia fell as much as 13 percent and was down 11 percent to 37 cents by 12:33 p.m. in Brussels trading, valuing the company at 723 million euros. The stock has fallen 85 percent this year.

Greek Writedowns

Dexia, which didn’t publish after-tax third-quarter results, said today it had 10.5 billion euros of “pro forma” losses in the first nine months of 2011. The bank had a 4.07 billion-euro loss from the sale of its consumer-banking unit in Belgium and 2.32 billion euros of losses from Greek bonds in the period.

Dexia, based in Brussels and Paris, increased its writedown on Greek sovereign debt to 55 percent, booking an additional 1.4 billion-euro loss, it said. The company also took a 903 million- euro loss from hedging derivatives “because of the uncertainties weighting on the expected bonds cash flow,” the bank said.

Dexia still needs to sell its banking units in Luxembourg and Turkey as well as its asset-management division to free capital and eliminate a funding shortfall of an estimated 1.7 billion euros to reach a core Tier 1 ratio of 9 percent after markdowns of sovereign-debt holdings. The firm had 7.8 billion euros of Tier 1 capital at the end of September, while risk- weighted assets stood at 78.8 billion euros, it said.

Italian Risk

Dexia had a “maximum credit risk exposure” of 13.6 billion euros from sovereign-debt holdings in Italy, Spain, Greece and Portugal at the end of September.

The bank’s sovereign risks tied to Italy and Spain remained “stable” in October, Chief Executive Officer Pierre Mariani told reporters on a conference call today. At the end of September, Dexia had 10 billion euros of risks related to Italy’s government bonds and 475 million euros on Spanish sovereign bonds.

The company aims to complete most of its planned disposals by the first quarter of 2012, Mariani said, without naming any specific asset. Dexia plans to make financial data available on its Turkish consumer-banking unit Denizbank AS next week, he said, declining to name any potential buyer.

“It’s very important to have as much capital as possible in the residual bank,” Mariani told Belgian lawmakers in parliament two days ago. “The more capital, the better the protection for the taxpayers’ guarantee.”

Dexia, as part of its second government rescue in three years, obtained a 90 billion-euro guarantee for 10 years from Belgium, France and Luxembourg last month to cover its funding needs. The bank will have to pay a fee for use of the government backstops and said today those guarantees will cover debt with a maturity of as much as three years. Details of the remuneration will be communicated “in due time,” it said.

The lender also said it will bolster shareholder equity of its French unit Dexia Credit Local SA by as much as 4.2 billion euros through a conversion of subordinated debt due to Dexia SA into stock and allocating proceeds of the sale of the Belgian bank to the French unit.

--Editors: Stephen Taylor, Keith Campbell

To contact the reporters on this story: John Martens in Brussels at jmartens1@bloomberg.net; Fabio Benedetti-Valentini in Paris at fabiobv@bloomberg.net

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net


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