Saturday

24th Aug 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”.

Exclusive

Brexit row delays financial products transparency review

A European financial regulatory body set up after the financial crisis is at loggerheads with the European Commission over whether to carry out a transparency review of certain financial products. The reason: Brexit.

Commission defends Mercosur trade deal

EU commissioners defended a far-reaching free trade agreement between the EU and four Latin American countries, against critics who fear it will damage European farmers' livelihoods and the global environment.

News in Brief

  1. Ocean Viking to disembark in Malta after ordeal
  2. Germany joins France in world outcry on Brazil fires
  3. British people lose faith in Brexit deal
  4. Brexit hardliners want further changes to EU deal
  5. German manufacturers confirm fear of recession
  6. Belgian socialists and liberals scrap over EU post
  7. Fall in EU migration leading to UK skills shortages
  8. Switzerland makes post-Brexit flight preparations

Opinion

Why von der Leyen must put rights at core of business

Ursula von der Leyen's in-tray must include those European executives on trial for systematic workplace harassment, the break-up of European slavery rings, and allegations of European companies' abuse in palm oil, including child labour, land grabs, and deforestation.

Stakeholders' Highlights

  1. UNESDAUNESDA reduces added sugars 11.9% between 2015-2017
  2. International Partnership for Human RightsEU-Uzbekistan Human Rights Dialogue: EU to raise key fundamental rights issues
  3. Nordic Council of MinistersNo evidence that social media are harmful to young people
  4. Nordic Council of MinistersCanada to host the joint Nordic cultural initiative 2021
  5. Vote for the EU Sutainable Energy AwardsCast your vote for your favourite EUSEW Award finalist. You choose the winner of 2019 Citizen’s Award.
  6. Nordic Council of MinistersEducation gets refugees into work
  7. Counter BalanceSign the petition to help reform the EU’s Bank
  8. UNICEFChild rights organisations encourage candidates for EU elections to become Child Rights Champions
  9. UNESDAUNESDA Outlines 2019-2024 Aspirations: Sustainability, Responsibility, Competitiveness
  10. Counter BalanceRecord citizens’ input to EU bank’s consultation calls on EIB to abandon fossil fuels
  11. International Partnership for Human RightsAnnual EU-Turkmenistan Human Rights Dialogue takes place in Ashgabat
  12. Nordic Council of MinistersNew campaign: spot, capture and share Traces of North

Latest News

  1. Spain heading for yet another general election
  2. EU to discuss Brazil beef ban over Amazon fires
  3. 'Our house is burning,' Macron says on Amazon fires
  4. What happens when trafficking survivors get home
  5. EU states and Russia clash on truth of WW2 pact
  6. EU considers new rules on facial recognition
  7. EU to pledge Africa security funds at G7 summit
  8. Letter from the EESC on per diem article

Join EUobserver

Support quality EU news

Join us