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October 10, 2011 at 07:04 AM
Belgian-French bank Dexia is splitting up after the Belgian government announced Monday that it would buy the local consumer lending unit of the company, leaving its Luxembourg unit and French municipal lending division, among other assets, to be sold off to raise capital for a so-called bad bank.
Belgium will guarantee 60% of that bad bank, according to Didier Reynders, Belgium’s finance minister, which will be used to sequester Dexia’s troubled assets. Members of the Qatar royal family are reportedly interested in the purchase of the Luxembourg unit.
Bloomberg reported that the deal will cost 4 billion euros ($5.4 billion), with the governments of Belgium, France and Luxembourg guaranteeing funding to keep Dexia afloat. Together they will guarantee about 90 billion euros over the next ten years, with Belgium providing 61%, France 37% and Luxembourg 3% of the necessary funds. Dexia’s fall was an unpleasant surprise for the euro zone, because it had passed its stress tests in July with flying colors, yet was mired in peripheral zone debt and severely undercapitalized.
