Dexia SA, Belgium's biggest bank by assets, tumbled the most ever in Brussels trading after its board asked CEO Pierre Mariani to take steps to fix the company's “structural problems.”
“In the current environment, the size of the non-strategic asset portfolio impacts the group structurally,” Dexia said in an emailed statement on Tuesday. “This is why the board of directors asked the CEO, in consultation with the relevant governments and the supervisory authorities, to prepare the necessary measures to resolve the structural problems.” The bank didn't elaborate on its plans.
The shares slid as much as 38 per cent, the steepest intra-day decline since the lender's formation in 1996. The board met yesterday to discuss a possible breakup of the company after the sovereign-debt crisis reduced its ability to obtain funding, three people with knowledge of the talks said. Dexia may set up a “bad bank” for its troubled assets, hive off its French municipal loan book into a venture funded by state-owned La Banque Postale and Caisse des Depots et Consignations, and seek buyers for its Belgian bank, Denizbank AS in Turkey and its asset-management division, one of the people said.
The discussions are complex because Dexia is based in Brussels and Paris, and has both governments as shareholders.
“Dexia is an extremely complicated file,” said Benoit Petrarque, an Amsterdam-based analyst at Kepler Capital Markets with a “hold” rating on the shares. “The fact that two countries are involved, both under pressure from rating agencies, makes it even more difficult. We are not in 2008 anymore, when you could just inject multibillions of cash.”
Belgian finance minister Didier Reynders said the government would support Dexia if necessary. “If it is needed, we will act,” Reynders said on Tuesday in Luxembourg. “First of all, we need to read all the proposals coming from the bank.”
State shareholders will support Dexia to allow it to roll out measures “in an orderly manner and under the best conditions,” Dexia said, without elaborating.
The stock was down 29 cents, or 22 per cent, to euro 1.01 at 8:50 am in Brussels, cutting Dexia's market value to about euro 2 billion ($2.6 billion). The shares plunged more than 10 per cent yesterday as speculation grew that the bank would seek a second bailout.
A breakup of Dexia would mark the clearest evidence yet that the banking crisis spurred by Europe's sovereign debt woes is spreading from the periphery to the core of the euro region. Dexia posted a euro 4-billion loss for the second quarter, the biggest in its history, after writing down the value of its Greek debt.
Dexia, once the world's biggest lender to municipalities, received a euro 6-billion bailout from Belgium, France and its largest shareholders in September 2008 following Lehman Brothers Holdings Inc's collapse.
Moody's Investors Service put Dexia's three main operating units on review for a downgrade yesterday on concern the lender was struggling to fund itself.
“Dexia has experienced further tightening in its access to market funding,” Moody's said in a statement. “Dexia's collateral postings have increased due to substantial market volatility.”
Dexia had sought to reduce its reliance on short-term funding following its rescue. Borrowings due in less than a year declined to euro 96 billion.
