It was the second time in three years that Dexia needed to be rescued. This time, Belgium agreed after board and cabinet meetings to pay €4.0 billion ($5.36 billion) for Dexia’s domestic consumer-lending unit.
The dismantling of what was one of the largest lenders in France and Belgium three months after it passed European stress tests brought the banking crisis from the continent’s Mediterranean periphery right to its economic heart.
Belgian Prime Minister Yves Leterme told a news conference that the takeover of Dexia Bank Belgium would “make secure” the retail bank and free it from “any risks resulting from the environment within parent body Dexia SA.
“Households can be sure and certain that their money is safe in their current accounts,” Leterme said. “The taxpayer will not be called on to contribute too much as the risk is under control and the cost of the operation is relative.”
Despite his reassurances, Dexia chief executive Pierre Mariani said clients made “significant withdrawals” from their accounts before the agreement was announced.
French Finance Minister Francois Baroin insisted that Dexia’s rescue was an isolated case and that banks in trouble were already identified in the European stress tests on the industry earlier.
“Dexia is a particular case, it’s not a general case,” Baroin told French TV channel iTele.
Amid mounting fears the debt crisis could sink the banking sector, German Chancellor Angela Merkel and French President Nicolas Sarkozy vowed on Sunday a response within weeks and insisted they were united on plans to shore up lenders.
Without announcing concrete details, Sarkozy promised, after talks with Merkel in Berlin, “lasting, global and quick responses before the end of the month” amid growing fears of a crippling credit crunch.
The eurozone drama has sent shivers across the Atlantic over concerns it could trigger a new global recession, with US President Barack Obama calling on Europeans to act fast to stem the crisis.
British Prime Minister David Cameron, in an interview with the Financial Times on Monday, warned that “time was short” for eurozone leaders to solve the debt crisis and urged them to adopt a “bazooka” approach.
Baroin provided some details, saying the exposure of banks to sovereign debt risks will be included with their results in any review and then central banks and regulators will establish the level of capital they need.
Banks needing recapitalisation will be able to do it through the markets or state agencies, he said, adding they may also get help from the eurozone rescue fund, the European Financial Stability Facility, once it is revamped.
In Paris, the Dexia board said the government takeover of Dexia Bank Belgium was in the “social interest” of the group.
Belgian Finance Minister Didier Reynders told the press conference that the €4.0-billion offer for Dexia Bank Belgium was “reasonable” and that the government does not want to keep control “indefinitely.”
In France, the government is aiming to create a new bank focused on local communities and owned by the Postal Bank and a public investment group, Caisse des Depots (CDC).
Investors from Qatar’s royal family meanwhile have agreed to buy the group’s Luxembourg unit, Dexia BIL.
The break-up became inevitable after worries over Europe’s sovereign debt caused a severe liquidity crisis and the rescue of a bank with a balance sheet of half a trillion euros — bigger than the entire Greek banking system — was seen as crucial to stop contagion.
Reynders said Belgium would guarantee the financing of the future “bad bank” that would remain to hold high-risk assets after the dismantling of the Dexia group, to the tune of 60.5 percent, or €54 billion.
The guarantee by the three states — France, Belgium and Luxembourg — where Dexia is present amounted to €90 billion, he said, against €150 billion when it was rescued in 2008 at the start of the global financial crisis.
The trio agreed to a similar split of the burden as in 2008 — 60.5 percent for Belgium, 36.5 percent for France and 3.0 percent for Luxembourg.
By providing guarantees, Baroin said the French government was not increasing its debt, therefore ensuring that it will keep its prized triple-A credit rating intact.
On Friday, ratings agency Moody’s said it had placed Belgium’s credit worthiness under review and that a downgrade was possible partly due to the Dexia bailout plans.
Dexia’s shares were suspended in Paris and Brussels on Monday, the third trading day in a row.