November 8, 2012

Dexia Doomed? France, Belgium Add More Funds

Capital plan intended to be last, says Belgian minister

Dexia, the troubled Franco-Belgian bank that was partly nationalized by Belgium just over a year ago—its second rescue in three years—is still in trouble. After yet another hefty loss on its balance sheet, France and Belgium have agreed to sink yet more money into the bank—although the Belgian finance minister has said this latest infusion of cash is intended to be its last.

Reuters reported Thursday that France and Belgium have agreed to pour an additional 5.5 billion euros ($7 billion) into Dexia after it posted a nine-month loss of 2.39 billion euros. In 2008 the bank had ingested some 6.4 billion euros, and in October 2011, the Belgian, French and Luxembourg governments agreed to guarantee funding to keep the bank afloat.

This time around, according to statements from the Belgian and French ministries, Belgium will contribute 2.92 billion euros, or 53% of the total, with France providing the remaining 2.59 billion. In exchange, the two countries will receive preference shares that include voting rights, giving them the chance to recover funds should Dexia make money.

Steven Vanackere, the Belgian finance minister, said in the report that the money contributed by Belgium would be included in Belgium's national debt but not count toward the country's budget deficit targets, but Eurostat, the European statistics agency, would have the final say over whether this would be the case.

Vanackere added that the recapitalization is intended to be the final one for the financial group, but that nobody could be sure of that. "Is it a total guarantee? People who give such a guarantee are unwise," Vanackere said in the report.

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