“France, Belgium and Luxembourg are evaluating a number of scenarios to dismantle Dexia, with a potential agreement in the coming 24 hours,” the report by Keefe, Bruyette & Woods--which specialises in the financial services sector--said. Dexia has been hit hard by Europe’s sovereign debt crisis, with KBW noting its 95 billion euro bond portfolio exposure.
“‘At risk’ sovereign debt amounts to 82 percent of Dexia’s equity, the loan to deposit ratio is 253 percent and the group is in the midst of running down 113 billion euro of its balance sheet,” UBS analyst Omar Fall warned on Tuesday.
The Franco-Belgian bank’s healthy Luxembourg units, Dexia Asset Management and Dexia BIL, are to be sold, employees were informed on Tuesday. Staff also heard that Dexia will spin-off toxic assets into a ‘bad bank’ backed by the Belgian and French states, a source told Delano.
“A key issue in the negotiation is the size of the ‘bad bank’, which we estimate could reach 200 billion euro in total assets,” KBW’s Jean Pierre Lambert and Antoine Royer wrote. They say the Belgian and French governments, given their own debt situation, will support the ‘bad bank’ but are unlikely to inject capital into any profitable parts of Dexia that are being sold off.
At the same time, Belgium and France do not want Dexia shareholders to lose all of their stakes in the firm. “A high or 100 percent loss would set a negative precedent ahead of any other potential future state aid in the sector and we think this is unlikely,” wrote Fall.
A spokeswoman for Dexia would neither confirm nor deny the reports.
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