Dexia SA (DEXB), the French-Belgian lender that’s being broken up, received European Union approval for a second extension of funding guarantees from Belgium, France and Luxembourg that are eroding the bank’s remaining capital.
The 55 billion euros ($70.8 billion) of government backstops that were due to expire on Sept. 30 have been extended until Jan. 31, the Brussels-based European Commission said today in a statement. Dexia has tapped as much as 51 billion euros of the temporary guarantees and still has 19.9 billion euros of additional government-backed debt outstanding from a 2008 agreement, Belgian central bank data show.
Dexia’s reliance on temporary guarantees and emergency central-bank loans to refinance its assets comes at a cost that may sooner or later force the bank to seek fresh funds from the governments. Dexia paid the three nations 313 million euros in fees for the guarantees in the six months through June, exacerbating a first-half loss that reduced its regulatory capital by 14 percent to 7.36 billion euros, or 325 million euros above the minimum threshold.
“It would be naive to assume that the European Commission could approve a global plan without an increase or reinforcement of Dexia’s capital,” Belgian Finance Minister Steven Vanackere told lawmakers last month in the finance and budget committee of Parliament’s lower house. “It’s not because we don’t talk about a recapitalization that the Belgian government isn’t preparing one.”
Using taxpayer funds to shore up Dexia or its remaining subsidiary, Dexia Credit Local SA, based in Paris, requires approval from the European Commission. EU regulators can impose conditions on the aid. Dexia’s original resolution plan, which was submitted at the end of March, didn’t include a recapitalization by the states.
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