Belgium to Buy Local Consumer Lending Unit of Dexia for $5.4 Billion

October 10 00:00 2011

New York, October 10 ( – The current, severe liquidity squeeze has brought intense funding pressure on Dexia and in order to bail it out, the Belgian government will buy its Belgian subsidiary for $5.4 billion as part of a restructuring process of the bank. Dexia had been exposed to highly indebted euro zone states like Greece, Italy and Spain and to some struggling municipalities of the United States, and as a result it was under tremendous funding pressure.

It is the first European bank to be given a state bailout since the financial crisis of 2008. In addition to the buyout, an additional $121 billion will be provided to the bank in funding guarantees for up to 10 years by the governments of Belgium, France and Luxembourg. A so-called “bad bank” for Dexia will be created by the guarantees into which the entire toxic assets of the bank will be transferred.

France will provide 36.5 percent of the guarantees whereas Luxembourg will provide 3 percent and the balance 60.5 percent of the guarantees will come from Belgium. Dexia’s board is also negotiating with French banks Caisse des Depots et Consignations and La Banque Postale in order to find funding for the financing of French local authorities, in which Dexia is actively involved.

Dexia said that it would be able to reduce its short-term funding needs by almost euro 10 billion if it gets the backing of Caisse des depots.