Thursday

23rd May 2019

Belgium rescues troubled bank amid ratings warning

  • Dexia has a risk exposure twice the size of Greece's GDP (Photo: Valentina Pop)

The Belgian state has said it will pay €4 billion to purchase Dexia, a Franco-Belgian-Luxembourg bank with high exposure to Greek debt.

After a 14-hour board meeting on Sunday (9 October), Dexia's management agreed to the break-up and the state purchase of its largest division and the setting up of a so-called bad bank to deal with its troubled assets.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

The Belgian government will guarantee 60 percent of those assets, relieving Dexia of more than €14 billion in terms of immediate recapitalisation needs. The rest of the guarantees will come from France and Luxembourg.

"We found an agreement on the fair division of the costs related to the management of the 'rest bank'," Belgian outgoing Prime Minister Yves Leterme told a news conference early Monday morning.

The dismantling of Dexia comes only three months after bank was deemed 'safe' by a so-called EU stress test. In 2008, at the peak of the financial crisis, Dexia was helped by the same three governments with a cash injection of €6 billion and state guarantees of up to €150 billion.

Deemed 'too large to fail' by the Belgian, French and Luxembourgish governments, Dexia has a total credit risk exposure of over €500 billion, more than twice Greece's GDP. Its bond portfolio includes €21 billion in Greek, Italian, Portuguese, Spanish and Irish debt.

Trading in Dexia's shares was suspended on Thursday after a 42-percent plunge last week. Trading is to be resumed on Monday.

The bank was downgraded by Standard & Poor's before the nationalisation, a move which is likely to have an impact on Belgium's overall credit rating.

On Friday, Moody's ratings agency said it may have to dowgrade Belgium's Aa1 rating because of the current euro-area crisis and the knock-on effect from a potential Dexia bailout.

"It is unclear how far additional support measures would be likely to weigh on the balance sheet of the government," Moody's said in a statement last week.

Opinion

Italy and Belgium - eurozone's overlooked Achilles' heel

The markets have so far overlooked the problems faced by Belgium and Italy, which to some extent are even worse than those of the PIGS (Portugal, Ireland, Greece and Spain), but the situation may soon flip,Andy Langenkamp writes.

Commission to unveil bank bail-out plan

European Commission President Jose Manuel Barroso has said that the EU executive will put forward plans for a fresh round of bank bail-outs across Europe on Wednesday.

Banks, Europe haggle over scale of bond haircut

The world’s banks have delivered a “significant” new offer on the scale of a haircut on their holdings of Greek sovereign debt, but no details have appeared since their earlier stance described by one EU diplomat as “playing hardball”.

EU top court backs Canada trade deal in ruling

The European Court of Justice ruled on Tuesday that the EU-Canada free trade agreement, and its controversial dispute settlement mechanism, is in line with the bloc's rules.

News in Brief

  1. Some EU citizens turned away at UK polling stations
  2. Switzerland unlikely to sign draft EU deal
  3. UK sacked defence secretary backs Johnson for leader
  4. Dutch voter turnout so far slightly down on 2014
  5. Report: Hungary's Fidesz 'bought' Belgian official
  6. Poll: Denmark set to double number of liberal MEPs
  7. European brands 'breaking' chemical safety rules
  8. Report: Merkel was lobbied to accept EU top job

Feature

Romania enlists priests to promote euro switchover plan

Romania is due to join the single currency in 2024 - despite currently only meeting one of the four criteria. Now the government in Bucharest is enlisting an unlikely ally to promote the euro to the public: the clergy.

Trump and Kurz: not best friends, after all

The visit of Austrian chancellor Sebastian Kurz to the White House on Wednesday showed that the current rift in transatlantic relations is deepening by the day.

Stakeholders' Highlights

  1. Vote for the EU Sutainable Energy AwardsCast your vote for your favourite EUSEW Award finalist. You choose the winner of 2019 Citizen’s Award.
  2. Nordic Council of MinistersEducation gets refugees into work
  3. Counter BalanceSign the petition to help reform the EU’s Bank
  4. UNICEFChild rights organisations encourage candidates for EU elections to become Child Rights Champions
  5. UNESDAUNESDA Outlines 2019-2024 Aspirations: Sustainability, Responsibility, Competitiveness
  6. Counter BalanceRecord citizens’ input to EU bank’s consultation calls on EIB to abandon fossil fuels
  7. International Partnership for Human RightsAnnual EU-Turkmenistan Human Rights Dialogue takes place in Ashgabat
  8. Nordic Council of MinistersNew campaign: spot, capture and share Traces of North
  9. Nordic Council of MinistersLeading Nordic candidates go head-to-head in EU election debate
  10. Nordic Council of MinistersNew Secretary General: Nordic co-operation must benefit everybody
  11. Platform for Peace and JusticeMEP Kati Piri: “Our red line on Turkey has been crossed”
  12. UNICEF2018 deadliest year yet for children in Syria as war enters 9th year

Latest News

  1. Polling booths open in UK's limbo EU election
  2. Dutch PM puts EU exit on agenda with election gamble
  3. EU development aid used to put European police in Senegal
  4. EU should stop an insane US-Iran war
  5. EU faces moment of truth at midnight on Sunday
  6. Dutch MPs: EU sanctions should bear Magnitsky name
  7. Far-right hate speech flooded Facebook ahead of EU vote
  8. Key details on how Europeans will vote

Join EUobserver

Support quality EU news

Join us