The Dexia bank headquarters in Brussels(Nouvelle Solidarité) — To cover up the fact that the giant Belgo-French Dexia Bank went bankrupt on October 5, it was decided to avoid the word “bankruptcy” and call it “organized break-up.” Yesterday, when shares dropped dramatically by 17.24% the Belgian government decided to suspend their quotation on the Brussels stock market till Monday. Dexia’s motto was “short term has no future.” The bank plays a key role in helping some US states and cities raise funds. Concerns about its health have caused their borrowing costs to rise.
Dexia was created in 1996 when Credit Local de France merged with Credit Communal de Belgique. The company combined France and Belgium's biggest municipal lenders providing finance for spending on schools, public transport, street lighting and other locally controlled budgets. The aim was to strengthen the business ahead of the euro's launch in 1999. The single currency's introduction was expected to increase competition across the bloc's banking sector. Over subsequent years, Dexia continued to expand. It took control of the Italian lender Crediop, Belgium's Artesia Banking Corporation, the Israeli bank Otzar Hashilton Hamekomi and Turkey's DenizBank. Trouble of Dexia started when it bought the US asset management and bond insurance unit, FSA which lost big with the subprime debacle. Close to bankruptcy, Dexia was saved in September 2008 with a 6.4 billion euro bailout by France, Belgium and Luxemburg.
Besides the vast amount of old “toxic assets” conserved in Dexia’s “legacy division”, today, what provoked collapse it’s the euro crisis. Dexia has 3.4 billion euros exposure to Greek government bonds. Analysts estimate it has a further 17.5 billion euros of exposure to sovereign debt issued by Italy, Spain, Portugal and other troubled eurozone economies.
Ironically, on July 15, Dexia passed the banking stress tests carried out by the European Banking Authority and announced in a press release: “2011 EU-wide stress test results: no need for Dexia to raise additional capital”. The problem is that the tests did not take into account a scenario in which Greece might default on its bonds. Dexia has written down the value some of its long-term Greek holdings by 21%. However, some speculate that creditors may ultimately have to absorb a 50-60% loss.
The other direct factor was that Dexia relied mostly on short-term funds, which are renewed on a rolling basis. But the access to those funds is no longer there because of market concerns about its exposure to the euro periphery and the requirement of higher collateral.
The main shareholder of Dexia, the largest Belgian corporation, is the French state institution Caisse des Dépôts et des Consignations (CDC) with 17.7%. Second largest is the Belgian Holding Communal (14.1%) which belongs to Belgian municipalities and regional governments. Tomorrow the management will meet tomorrow to decide on the sale of the different components of the bank.
Dexia Bank is a giant holding with five legs which are now cut off and sold separately to the most offering.
1) Dexia Banque International du Luxembourg (BIL), is a private bank with 12 billion euros of assets and some 40 agencies. Discussions have started with Qatar for a takeover. 2) Dexia Crédit Local (DCL), formerly the “Crédit Local” is the main source of financing of French municipalities and cities. They became notorious for their scheme of “toxic loans” with rates adjustable on exotic indexes. This part would be taken back directly by the French CDC. 3) Denizban is a real deposit bank in Turkey. The Russian Sberbank started exclusive talks with Dexia for a takeover. 4) Dexia Bank Belgique (DBB) is also a real commercial bank. Belgium announced they consider nationalizing it. Belgian citizens already pulled out 300 million euros in cash in what is the beginning of a bank run. 5) Dexia Asset Management (DAM), also for sale.
Once everything is sold, Dexia Bank as such, will remain stuck with 95 billion euros of “toxic assets” with a 13 year lifespan in short a “bad bank”. But Sarkozy wants to save it with French and Belgian state guarantees and have the Caisse des Dépots and Banque Postal, to take over the 95 billion of toxic junks of Dexia Municipal Agency (Dexma)! In short, the old monetarist trick of “privatizing profit and socializing losses.”
So far, as confirmed by inside sources, the Caisse des Dépôts is at war with Sarkozy and the Finance Ministry (Bercy) and refuses to bail out Dexia in fear of losing its own AAA rating. Former Finance Minister Laurent Fabius declared on Wednesday morning that such a state guarantee would affect France’s AAA rating. In an immediate response, the president of the Banque de France Christian Noyer, a staunch opponent of Glass-Steagall, said this was all untrue, since the European statistical agency Eurostat doesn’t consider such garantees “as debt” and therefore no consequences are to be feared. Noyer was rebuked by the rating agencies which declared that indeed they took into consideration such guarantees.
From the propaganda side, the financial media lies this to be “not a new Lehman Brothers” but only a “new Bear Sterns” whose failure should have provoked a recapitalization of all the banks to avoid more dramatic bankruptcies afterwards.
Via: http://www.larouchepac.com/node/19751
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