The first bank to fall victim to Europe’s debt crisis, Franco-Belgian Dexia Bank, which was “dismantled” last week after collapsing due to its large exposure to Greek and Italian debt, has finally been rescued by the Belgian government. Rescuing Dexia was critical to preventing contagion in the euro zone’s banking industry.
After a marathon meeting over the weekend with French, Belgian and Luxemburg officials, the Belgian government agreed to nationalise the Belgian retail division with a 4 billion payout to the ailing bank and 90 billion euros of guarantees which would secure borrowing over the next ten years. After a press conference today, Belgian Finance Minister Didier Reynders said that Belgium would provide 60.5 percent of these guarantees, France 36.5 percent and Luxembourg 3 percent.
Dexia shares were suspended on October 6 but were scheduled to resume trading in Brussels today, according to Belgium’s stock market regulator. Dexia stock dropped 42 percent last week on concern that the breakup will leave shareholders with little of value.
Under the rescue plan Dexia will be left with a portfolio of bonds in run-off, which totalled 95.3 billion euros at the end of June and including 7.7 billion euros of junk class and some 7.4 billion euros of mortgage-backed securities.
The proceeds of the sale of healthy assets will help Dexia Holding absorb the losses on the so-called ‘toxic’ assets. Also, as part of the bank’s break-up Dexia is also in talks to sell its Luxembourg division to a group backed by the Qatar royal family.