Tuesday

29th Nov 2022

Greek crisis close to claiming first victim in EU banking sector

  • The Atomium monument in Brussels: The Franco-Belgian bank risks being split into tiny pieces in order to protect high-street savers (Photo: O Palsson)

Franco-Belgian bank Dexia has said it might "restructure" its operations in response to a run on shares caused by exposure to bad Greek debt.

The bank in a statement issued after an emergency meeting in the small hours of Tuesday (3 October) said "the board has asked the CEO to prepare ... the necessay measures to solve structural problems which hamper its operational activities", citing "the size of the portfolio of non-strategic assets [which] structurally weighs down on the group."

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Options for what would amount to a break-up of the company include getting rid of Dexia Credit Local, a unit which lends money to local authorities in Europe and the US, Dexia Banque Internationale a Luxembourg, its private fund-management branch, and Denizbank, its retail banking business in Turkey.

Belgium and France, large shareholders in Dexia, might also create a 'bad bank' on the model of Ireland's Nama, which would take over Dexia's riskiest assets in a bid to protect its core activities.

Rating's agency Moody's warned on Monday it is getting ready to downgrade Dexia, an announcement that wiped out 10 percent of the value of its shares in one day atop losses of 30 percent in the past three months. It said "Dexia has experienced further tightening in its access to market funding" - the day-to-day loans provided by markets which banks need to fund normal activity, like providing cash and loans to high-street savers.

The loss of confidence comes due to Dexia's exposure to Greek and Italian debt. If the private sector is forced to write off 50 percent of Greek bonds, Dexia stands to lose around €2 billion, equivalent to 80 percent of its value as a company.

Belgian finance minister Didier Reynders tried to reassure Dexia's high-street customers on Monday. "The French and Belgian governments are behind their banks, whether that is Dexia or another. To help banks and to help, for example French and Belgian savers, the first thing to do is to help Greece," he said at a meeting of EU finance ministers in Luxembourg.

Dexia is a medium-sized bank by EU standards. But its larger cousins face similar problems. Major French banks BNP Paribas, Societe Generale and Credit Agricole also lost between four percent and five percent of their value this week due to exposure to Greece, on top of 40 percent to 56 percent losses in recent months.

All four banks, including Dexia, were given a clean bill of health by EU "stress tests" in July.

Fresh EU statistics on bank lending to small and medium-sized business show how the crisis in high finance is having a direct impact on the ground.

Unsuccessful loan applications between 2007 and 2010 rose in 19 out of 20 EU countries for which data is available, the European Commission noted on Monday. Bulgaria is the worst hit, with the proportion of unsuccesful applications climbing from three percent to 36 percent. In Ireland, the numbers went from one percent to 27 percent.

Fresh stress tests for EU banks

EU finance ministers have agreed the broad outlines of a fresh round of stress tests on major European financial institutions. The reviews will be much more thorough-going than the stress tests of key banks last year, which failed to foresee the crisis in the Irish banking sector.

Euro crisis to smother growth in eastern Europe

The current troubles in the eurozone are slowing growth in eastern European countries, particularly Romania, Albania and Serbia, where Greek banks are an important part of the financial sector, a study by the European Bank of Reconstruction and Development says.

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Financial markets hoping for the outline of some grand strategy for dealing with the ever-worsening eurozone crisis are likely to be disappointed by the vague announcement offered up by the French president and German chancellor after emergency talks in Berlin on Sunday.

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