French, Belgian Intervention in Dexia May Create 'Bad Bank'
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Recent talks and plans in Europe may leave Dexia SA with its worst assets, resulting in the lender becoming a "bad bank."
Under the plan which is largely favored by the French, the French and Belgian governments would be allowed to choose not to insert anymore capital into the bank, but the two governments would instead guarantee Dexia’s borrowing before splitting up the lender. The Belgian government would purchase Dexia’s assets within its country and France would acquire Dexia’s French municipal-lending unit.
Bloomberg suggests the move would terminate any need for immediate recapitalization of Dexia. The bank is unable transfer its bad assets to a new company because more equity would be needed as current numbers show losses for Dexia.
Dexia had €82.6 billion of outstanding municipal and project finance loans at the end of the first half and only €3.8 billion of deposits.
French European Affairs Minister Jean Leonetti noted the government will not allow for Dexia to go bankrupt. The regulator also said the French government will guarantee its deposits.
Under the plan which is largely favored by the French, the French and Belgian governments would be allowed to choose not to insert anymore capital into the bank, but the two governments would instead guarantee Dexia’s borrowing before splitting up the lender. The Belgian government would purchase Dexia’s assets within its country and France would acquire Dexia’s French municipal-lending unit.
Bloomberg suggests the move would terminate any need for immediate recapitalization of Dexia. The bank is unable transfer its bad assets to a new company because more equity would be needed as current numbers show losses for Dexia.
Dexia had €82.6 billion of outstanding municipal and project finance loans at the end of the first half and only €3.8 billion of deposits.
French European Affairs Minister Jean Leonetti noted the government will not allow for Dexia to go bankrupt. The regulator also said the French government will guarantee its deposits.
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