Brussels: Dexia became the second Belgian bank this week to get a government and shareholder bailout Tuesday when Belgium, France and Luxembourg said they would inject almost $9.2 billion to keep it afloat.
Dexia, a French-Belgian specialist in lending to local governments that ran up huge losses in its US operations, closed nearly 30% lower on Monday triggering emergency talks with government officials.
Belgian authorities and Belgian shareholders said in a statement that they would invest euro3 billion in the bank, while the French government via its investment arm CDC which holds just over 10% in Dexia will invest another euro3 billion. Luxembourg will add euro376 million.
Dexia CEO Axel Miller and chairman Pierre Richard resigned after “drawing conclusions from the current financial crisis and its impact on the Dexia group,” the company said. They will stay until successors are appointed.
Dexia said the bailout will allow it remain “one of the better capitalized banks in Europe” even if market volatility further devalues securities and other products it holds.
For Dexia, the Belgian and French investments come in the form of a capital increase that will issue new shares at $9.90 per share, 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 $1.43 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 euro1 billion, with its state investment arm Caisse des Depots et Consignations injecting euro2 billion. This will give France a 25% stake in Dexia, the Elysee palace said in a statement.
Dexia was one of several European banks to see its stock price drop sharply on Monday on fears that they would find it hard to cover potential losses as credit conditions tighten.
Trading in Dexia shares was suspended in Paris and Brussels on Tuesday after closing 28.5% lower at euro7.20 a day earlier. Banking stocks across the board were trading lower, even those largely unaffected by worries over their ability to raise debt.
Belgium, the Netherlands and Luxembourg moved to save Belgian-Dutch bank Fortis on Sunday, pumping $16.4 billion after its shares shrank by a fifth Friday. Traders saw the bank as overleveraged and lost confidence in its ability to pay for its expensive purchase of Dutch bank ABN Amro.