Belgium and France threw Dexia SA a ¤6.4 billion ($9.2 billion) lifeline and the chairman and chief executive officer stepped down as the widening financial crisis forced governments to prop up institutions across Europe.
Dexia, the world’s biggest lender to local governments, rose as much as 21 per cent in Brussels trading after Belgian Prime Minister Yves Leterme said Belgium’s federal and regional governments, France and the bank’s largest shareholders will fund the rescue. CEO Axel Miller and Chairman Pierre Richard will leave once replacements are found, the bank said.
The capital infusion for Brussels- and Paris-based Dexia comes two days after Belgium, the Netherlands and Luxembourg agreed to inject ¤11.2 billion into Fortis, the largest Belgian financial-services company. Britain seized Bradford & Bingley Plc, the UK’s biggest lender to landlords, while Germany bailed out Hypo Real Estate Holding AG.
“Things have accelerated brutally,” said Christophe Ricetti, a Paris-based analyst at Natixis SA who has a “reduce” rating on Dexia.
Dexia jumped 97 cents to ¤8.04 by 12:18 pm in Brussels, paring yesterday’s record 30 per cent decline. The shares have fallen 52 per cent this year, cutting the bank’s market value to ¤9.2 billion.
Coping With Markets: The Belgian federal and regional governments and shareholders will invest a combined ¤3 billion, Dexia said in an e-mailed statement. The French government will invest 1 billion and Caisse des Depots et Consignations, the country's state-owned bank, will put in ¤2 billion. Separately, the Luxembourg government will buy ¤376 million of notes convertible into shares of Dexia's unit in the country.
“This is done to make Dexia able to cope with what is going on in the financial markets,” Leterme said in Brussels.
Ireland’s government said today it will guarantee Irish banks’ deposits and debts for two years, seeking to restore confidence in the country's financial industry. Ireland joins governments around the world that have stepped in to protect banks as the financial crisis that drove New York-based Lehman Brothers Holdings Inc and Seattle-based Washington Mutual Inc into bankruptcy spreads.
In the US the Standard & Poor’s 500 Index tumbled the most since the 1987 crash yesterday after the House of Representatives rejected a $700 billion plan to rescue the financial system, while some of the country’s biggest bank rushed into deals.
Citigroup Inc, the largest US bank by assets, agreed to buy the banking operations of beleaguered Wachovia Corp, while Morgan Stanley sold a 21 per cent stake to Japan's Mitsubishi UFJ Financial Group Inc for $9 billion.
Dexia Bond Insurer: Dexia has come under pressure after bailing out Financial Security Assurance Inc., its New York-based bond insurance unit. Dexia agreed in August to provide $300 million to FSA after provisions tied to the subprime crisis led to a loss at the unit. The bank had already pledged a $5 billion credit line to FSA in June, and injected $500 million into the unit in February.
The bank said today that credit line will be turned into “an equally sized repo facility” to reduce the risk profile of the credit facility, it said.
Dexia also took responsibility in June for the $17.3 billion in invested assets at FSA's financial products unit, which includes $7.6 billion of sub-prime mortgage-backed securities.
