Dexia gets $9B injection
| Dexia gets $9B injection by Renee Cordes Updated 06:35 AM EST, Sep-30-2008
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Belgium, France and Luxembourg on Tuesday, Sept. 30, unveiled a €6.4 billion ($9.2 billion) bailout package for Dexia SA as the global financial crisis forced another European lender to its knees. “Our ambition was to have a very strong political involvement in order to send a signal to the markets,” Belgian Prime Minister Yves Leterme told reporters in Brussels. “This action is correct, strong, and contains opportunity.” Separately, Dexia announced the resignation of chairman Pierre Richard and CEO Axel Miller, citing the impact of the financial crisis on the group. The duo have agreed to stay on until their successors have been appointed. The Dexia rescue package was widely expected and came a day after its shares tanked 30% in their steepest decline since the stock began trading nearly 12 years ago. The stock, which was suspended from trading Tuesday, has shaved 54.2% this year. Dexia said the capital injection translates into about €9.90 per share, or the average closing price over the past 30 days. Few details were released on how the capital injection would be carried out though the parties said the Luxembourg government will invest euro 376 million in convertible bonds. In a statement, Dexia said the €6.4 billion will allow it to remain one of Europe’s better-capitalized banks even when taking account of potential negative impacts resulting from market volatility and a further deterioration in the portfolio of Financial Security Assurance Inc., Dexia’s New York-based bond unit. Dexia is the fifth European lender to receive a government rescue package so far this week. Within the past day, the three Benelux governments agreed a €11.2 billion lifeline to Dutch-Belgian group Fortis NV/SA; Germany ponied up €35 billon for property lending specialist Hypo Real Estate Holding AG; the U.K. nationalized mortgage lender Bradford & Bingley plc, having sold the best assets to Spain’s Banco Santander SA; and the Icelandic government agreed to pay €600 million for 75% of Glitnir Bank hf. Dexia Group was created in 1996 from the alliance of Crédit Communal de Belgique and Crédit Local the France, one of the first cross-border banking mergers in Europe. Today, Dexia is the world’s top lender to local governments, with branches or subsidiaries in 26 countries. The company has been overstretched after propping up its FSA bond unit. In August, Dexia pledged $300 million to FSA after provisions related to the subprime mortgage crisis led to losses at the unit. Dexia agreed a $5 billion credit line in June, and invested $500 million into the unit earlier this year. On Tuesday, Dexia said that it would convert its $5 billion credit line granted to FSA’s Financial Products asset management subsidiary in June would be converted into an equally sized repo facility, “hence significantly reducing the risk profile.” Earlier this month, Dexia said it expected losses of about $350 million related to senior bond exposure to Lehman Brothers Holdings Inc. http://www.thedeal.com/servlet/ContentServer?cid=1222708845755&pagename=hpa&c=TDDArticle&p=M4YD5AR1 |