Less than three months after Dexia SA, the French-Belgian bank, passed its European Union stress tests, it may be on the block—the chopping block.
Desperately in need of a bailout because of its heavy exposure to peripheral eurozone debt, the bank was already rescued by France and Belgium in 2008. Now those two countries have said they will shore it up once again. But the bailout may have more far-reaching effects this time.
Bloomberg reported that, at a Monday meeting, Dexia’s board met to discuss breaking up the bank after it became unable to obtain continued funding. Its stock has been hammered, along with shares of other banks, over fears that inadequate write-downs of Greek debt, and large holdings of Spanish and Italian bonds, may cause them to fail. Reuters reported that the bank’s toxic assets were expected to be isolated into a “bad bank,” with the rest being nationalized or sold off.
Europe’s banks are paying heavily to insure their debt, with French banks suffering most because of their heavy exposure to eurozone peripheral debt. Dexia at the end of 2010 held over 21 billion euros ($27.95 billion) in Greek, Italian, Spanish and Portuguese bonds, according to a New York Times report.