Of Special Interest
- Financial wellness affects half of peoples’ mental or physical health, finds report
- Study finds traditional financial institutions embrace Fintech disruption
- Grass is greener for environmentally friendly businesses, finds Barclays
- Prospective homeowners would consider a 40-year mortgage to escape renting, finds Santander
- Millennials’ needs are changing the face of banking industry, says new report
- FS is putting consumer data at risk by failing to protect mobile apps, says Arxan
- A lack of belief in their ability holds 28% women back in work, says Cambridge & Counties
- ‘Which?’ reveals Scotland has lost over a third of its bank branches in eight years
- Next downturn unlikely to be as bad as 2008, according to S&P
- FCA reveals findings from first cryptoassets consumer research
- US consumers favour single mobile app for banking and payments
- Banks suffering major IT shutdowns every day, ‘Which?’ reveals
- The US will be a key offshore centre in 2019, says GlobalData
- Debit industry changes markedly in 10 years of the Debit Issuer Study
- UK's ‘Big Five’ face ‘too big to compete’ as small challengers secure stellar returns
- Banks as vulnerable now as before crash, says new study
- Leverage ratio a constant conundrum for European and US banks, says SNL
30th August 2011
Dexia may struggle without state aid
Dexia had done a great deal to reform itself following the banking crisis. The question remains as to whether it has done enough fast enough to save itself from the pressures of the current markets. Specifically it has problems due to its enormous exposure to PIIGS (Portugal, Italy, Irish, Greece and Spain) sovereign debt and its dependence on the wholesale markets for a high proportion of its funding.
Dexia exposure to PIIGS sovereign debt is calculated by AlphaValue, the equity research company to be equal to 3.5 times the bank's equity capital - therefore essentially 3.5 times Core Tier 1. The bank is also exposed in the US from having made many untapped credit lines to US municipal authorities. These are largely unused at the moment however this could change quite rapidly.
As part of the plan agreed with the European Commission Dexia agreed to reduce its dependency on short term funding from the wholesale markets to 10% of total liabilities. It has made significant progress towards this goal reducing its dependence by almost two thirds from €265bn down to €96bn, equal to around 19% of total liabilities.
Finally there is a question over liquidity. In theory this is not a problem as the European Central Bank has publicly committed to supplying unlimited liquidity. The BUT comes from the fact the ECB must continue to believe the problem is confined to liquidity, that is to say that assets the bank has can be liquidated over time to cover the borrowings for the immediate liquidity needs of the bank.
Currently the market value of many banks is below the book asset value. Dexia is proportionately lower than any other banks of its size and importance, currently trading at below half of its book value. The failure of buyers to come in and buy stock at this knock down price is another indicator of the market concerns that it will face further significant losses.
This article contains a number of figures first quoted in a Wall Street Journal article on the bank. The opinions and interpretation are entirely that of Banking Newslink.