Franco-Belgian Bank Dexia to Restructure

On the morning of Friday, December 21, the shareholders of Franco-Belgian bank Dexia SA held a special session in Brussels to decide the bank’s restructuring. The stockholders of Dexia SA, also known as Dexia Group, voted 99.4% in favor of a recapitalization, saving the bank from liquidation. The vote specifically approved a capital injection of €5.5 billion, paid for by Belgium and France.

Dexia Tower in Paris.Photo: Linwood

Dexia Tower in Paris.
Photo: Linwood

The injection will consist of €2.9 billion from Belgium and €2.6 billion from France, leaving only 6% of the capital in the hands of Dexia to be traded by its current shareholders. Karel de Boeck, CEO of Dexia Group since May of 2012, needed 75% of the shareholders to vote in favor of the recapitalization in order for it to move on to the next step, approval by the European Union.

On Thursday December 20, before the Dexia shareholders approved the measure, Joaquin Almunia, antitrust chief of the European Commission said that he would “propose a decision approving the measures of additional aid.” Almunia announced that he would present the measure for official approval from the European Union on December 28.

According to the Dexia press release from the December 21 meeting, this measure will be completed by December 31, 2012. “Dexia SA will issue preference shares, subscribed by the Belgian and French States at a price of EUR 0.19 per share.” This amount represents the “average closing price of the Dexia share during the 30 days prior to the decision of the board of directors, taken on 14 November 2012.”

In addition to providing the capital increase of €5.5 billion, Belgium, France, and Luxembourg will grant a total security of €85 billion euros, guaranteeing 51.41%, 45.59%, and 3% respectively.

Dexia was one of the largest banks in the world, with more than 35,000 staff members and a market capitalization of just under €20 billion at the end of 2010. Hit extremely hard by the 2008 economic crash, it has since been bailed out three times: twice in 2008, and once in 2011. It held entities across Europe and worldwide.

Dexia borrowed €31.5 billion from the US Federal Reserve on October 24, 2008, more than any other bank that week. The discount window was established in order to provide banks with cash in order to prevent liquidity. The banks that borrowed from this discount window were kept secret for two years because “Chairman Ben Bernake told Congress in November 2008 that data on borrowers might taint them as not creditworthy,” according to Bloomberg.

In October 2011, Dexia announced a resolution plan for the bank, which has been ongoing ever since, and has included the sale of DenizBank, the sale of Dexia Banque Belgique (now Belfius) in October of 2011, and the sale its 50% share in Royal Bank of Canada (RBC).

It was one of the biggest lenders to local Belgian and French governments, accused of selling billions of euros in toxic loans. Although the bank originally was ranked 49th on the 2010 Fortune Global 500, and was also the top Belgian company, it is now, according to the Wall Street Journal, “a holding company for illiquid loans and sovereign debt from the euro-zone periphery.”

Without the financial support of France, Belgium, and Luxembourg, Dexia would have had to liquidate. This became evident last month, after the release of the financial statements showing a 9 month loss of €2.93 billion. Shortly thereafter, the agreement to inject €5.5 billion was reached between Belgian Finance Minister Steven Vanackere and French Finance Minister Pierre Moscovici.

In France, local communities have been hit especially hard. The financial situations of 1,800 small communities have been harmed by toxic assets like the ones given out by Dexia. The total of these toxic assets has recently risen above €18 billion. Caisse des Dépôts and La Banque Postale, two state-owned French banks, both devoted funds earlier in the year in response to the needs of the local communities who were hit by the financial difficulties Dexia has been facing.

All parties are awaiting the EU’s decision on December 28.

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