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Wed, Oct 01, 2008 - Page 10 News List

Dexia bosses resign after bank receives big bailout

TAKE THAT TO THE BANK Luxembourg, France and Belgium offered US$9.2 billion to help the ailing lender, which recently ran up huge losses in its US operations


The Dexia Bank headquarters is pictured in Brussels, Belgium, on Monday. Dexia SA will get a 6.4 billion euro (US$9.2 billion) state-backed rescue after worsening financial markets drove the shares to a record decline.


Dexia chairman Pierre Richard and chief executive Axel Miller resigned yesterday, the company said after receiving a 6.4 billion euro (US$9.2 billion) state bailout.

The two tendered their resignations after “drawing conclusions from the current financial crisis and its impact on the Dexia Group,” the company said in a statement.

Meanwhile, the Belgian government is keeping a very close eye on ING and KBC banks, Finance Minister Didier Reynders said yesterday.

“We are following the situation of Dexia, ING and KBC very closely,” he told a hearing of the country’s parliamentary financial affairs committee.

ING is a Dutch bank firmly rooted in Belgium while KBC is a Belgian banking and insurance group.

Dexia became the second Belgian bank this week to secure a government and shareholder bailout yesterday when Belgium, France and Luxembourg said they would help keep the business afloat.

Dexia, a French-Belgian specialist in lending to local governments that ran up huge losses in its US operations, closed nearly 30 percent lower on Monday — triggering emergency government talks.

Belgian authorities and Belgian shareholders said in a statement that they would invest 3 billion euros in the bank, while the French government — via its investment arm CDC, which holds just over 10 percent in Dexia — will invest another 3 billion euros. Luxembourg will add 376 million euros.

For Dexia, the Belgian and French investments come in the form of a capital increase that will issue new shares, while the Luxembourg government will get newly issued convertible bonds.

In return, the bank promised to improve the way it is run. In a statement, the governments and shareholders said they would take “necessary measures to significantly improve the group’s corporate governance, in particular as concerns the governing bodies.”

Belgium is splitting its share between the federal and regional governments, with 1 billion euros (US$1.43 billion) each from the federal state, the three Belgian regions combined and shareholders Gemeentelijke Holding NV, Arcofin CV and Ethias.

Belgian Prime Minister Yves Leterme told VRT news that “given the crisis situation around the Dexia group we took concrete and correct decisions to reinforce Dexia’s health so that the group can face the events playing out in financial markets.”

The French government will invest 1 billion euros, with its state investment arm Caisse des Depots et Consignations injecting 2 billion euros. This will give France a 25 percent stake in Dexia, the Elysee palace said in a statement.

“This decision was taken to guarantee the continuation of financing for local French governments for whom Dexia Credit Local is the main lender, as well as to contribute to the security and stability of the French and European financial systems,” the government said.

Belgium, the Netherlands and Luxembourg moved to save Belgian-Dutch bank Fortis on Sunday, pumping in 11.2 billion euros after its shares shrank by a fifth on Friday. Fortis and Dexia are finding it hard to borrow the billions of euros they need as a financial market crisis freezes borrowing.

Dexia ran into trouble with its US bond insurance unit FSA, which was hit hard by the subprime crisis. FSA quit asset-backed investments last month after setting aside US$936 million and securing a US$5 billion line of credit from Dexia to cover potential losses.

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