Bloomberg News

Dexia Talks Face No ‘Insurmountable’ Problems, Frieden Says

November 24, 2011

Nov. 23 (Bloomberg) -- Dexia SA will sell its Luxembourg unit within days and doesn’t expect talks about the government- backed funding of the remaining assets to face “insurmountable difficulties,” Luxembourg Finance Minister Luc Frieden said.

“I am sure that within the next days or so this deal can be concluded in a satisfactory manner,” Frieden said in an interview today in Luxembourg, referring to talks to sell Dexia Banque Internationale a Luxembourg SA to a group of investors including members of Qatar’s royal family.

Dexia, once the world’s largest municipal lender, is being dismantled after concern over European sovereign debt caused its short-term funding to evaporate. It sold its Belgian bank unit to the country’s government and France’s Caisse des Depots & Consignations agreed to take control of the subsidiary that funds its municipal-lending business in that country. Dexia is also selling units in Luxembourg and Turkey, seeking to allocate all of its capital to remaining assets and provide a bigger cushion to absorb potential future losses.

Frieden also said talks about government backstops meant to finance Dexia’s remaining assets are taking longer than expected because the European Commission needs to approve the funding guarantees, which are worth as much as 90 billion euros ($120 billion) for a period of up to 10 years.

“The length of the negotiations should not lead to conclusions that these are insurmountable difficulties,” Frieden said. “One actor in these negotiations, the European Commission, has to check all this and that’s why it’s taking longer.”

‘Information Needed’

“The commission isn’t in a position to take a decision,” Amelia Torres, spokeswoman for EU Competition Commissioner Joaquin Almunia, said today in Brussels. “It does not have all the information needed to take a decision.”

The commission demands a detailed business plan from Dexia’s French unit because it wants assurances that Dexia’s operations will be viable after the breakup, newspaper Le Soir reported today, without saying where it got the information.

Dexia gained as much as 15 percent in Brussels trading today and was 1 cent higher at 25 cents by 12:53 p.m. local time, valuing the lender, which is based in Brussels and Paris, at 493 million euros. The shares have lost 82 percent of their value since the end of September.

The rescue plan for Dexia has not been “put into question,” Valerie Pecresse, France’s budget minister and government spokeswoman, said today in Paris.

Permanent Solution

Belgium, France and Luxembourg are now considering guarantees of as much as 40 billion euros for a period of three to six months while a permanent solution is worked out, Belgian newspaper L’Echo reported today, without saying where it obtained the information.

Belgium will provide 60.5 percent of the government backstops, with France and Luxembourg providing 36.5 percent and 3 percent respectively, according to the terms of the Oct. 10 agreement. The distribution is identical to the funding guarantees Dexia first received three years ago, and of which it tapped a maximum of almost 96 billion euros in May 2009.

The lender still had 23.7 billion euros of government- backed borrowings outstanding yesterday, according to data published on a daily basis by the National Bank of Belgium. Some of that debt isn’t due before May 2014.

Dexia Chief Financial Officer Philippe Rucheton said on a Nov. 9 conference call that he was “not supposed to disclose” the amount of central-bank funding Dexia relies on, which signaled the lender is receiving emergency loans from the National Bank of Belgium. Dexia used to disclose its central- bank borrowings, which totaled about 34 billion euros at the end of June, every quarter in the past two years.

National Bank of Belgium Governor Luc Coene declined to say in a testimony to lawmakers on Oct. 26 how much emergency funding Dexia received from the central bank. He also said the interest rate on the emergency loans can’t be disclosed.

----With assistance from Greg Viscusi in Paris and John Martens in Brussels. Editors: Jones Hayden, Peter Chapman

To contact the reporter on this story: Stephanie Bodoni in Luxembourg at sbodoni@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net


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