PARIS - The French and Belgian governments said Thursday that they would inject another "5.5 billion into Dexia, a bank that has been on the ropes since the 2008 financial crisis, in an acknowledgement that the lender's finances have deteriorated further.
The two governments will obtain preference shares in exchange for the new capital, equivalent to about $7 billion, giving them first rights to any value the group might eventually yield. Belgium will provide "2.9 billion, 53 percent of the new funds. The French government will provide the rest, about "2.6 billion. They have also renegotiated their credit guarantees to Dexia, whose operations were concentrated largely between Belgium and France at the time of the credit crisis.
The new capital is necessary, they said, because “a certain number of hypotheses underlying the plan†for the bank's orderly resolution have been revised; in particular, its assumptions about its funding costs had turned out to be to o optimistic, and its Dexia Municipal Agency unit will now have its value effectively wiped out in a planned sale to the French government.
Dexia S.A., the group holding company, has a negative net worth after it wrote down the full value of its stake in Dexia Crédit Local, it said. The holding company also reported a third-quarter loss of "1.2 billion, and a loss of "2.4 billion for the first nine months of the year.
France, Belgium and tiny Luxembourg, where the group has an operating subsidiary, are winding Dexia down after the bank reached the verge of collapse in the fraught days of September 2008. The bank foundered after the collapsing credit bubble exposed its reliance on short-term funding and its balance sheet was scorched by failed investments that included hundreds of millions of dollars in unsecured Lehman Brothers bonds. Paris and Brussels agreed in 2008 to shore Dexia up with more than "6 billion.
In October 2011, they decided to nationalize the bank after worries about its Greek exposure led to a run on its shares, not long after the European Banking Authority had given it a clean bill of health following a stress test.
Dexia continues to hemorrhage money, even as it dumps assets. It booked a loss of "599 million on the sale of its Turkish unit, DenizBank. It booked another "466 million loss from the sale of Dexia Municipal Agency, which it is selling to the French government for "1, rather than the "380 million it had assumed previously.
France and Belgium, already struggling to bring their finances into line with European Union standards at a time of economic stagnation, can ill afford an open-ended commitment to Dexia, complicating negotiations to grapple with the bank's problems.
The governments said Thursday that they had agreed to reduce loan guarantees they made to Dexia Group in 2011, to "85 billion from "90 billion. In line with the new capital injection, Belgium's share of the guara ntee falls to 51.41 percent from 60.5 percent, while France's rises to 45.59 percent from 36.5 percent. Luxembourg's is unchanged at 3 percent.
They must also go back to the European Commission, which adjudicates antitrust matters, and seek approval for the latest bailout.
