Of Special Interest


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11th October 2011

Dexia break up

Dexia board made an announcement on Monday amounting to the progressive break-up of Dexia.

The board of Dexia S.A., the listed company, stated that it was 'in the social interest' to accept the offer from the Belgium state to acquire 100% of Dexia Bank Belgium and ordered the bank executive to "handle the consequences of the disposal in the interests of its clients, staff members of the Group and shareholders". The Belgium government is to pay €4bn plus a possible addition if the unit is sold.

The bank is to enter into exclusive negotiation with Caisse des Dépôts et Consignations and La Banque Postale "with a view to the conclusion of an agreement relating to the French local public finance sector". This affects the subsidiary Dexia Municipal Agency.

The board commented that the exclusive negotiations to sell Dexia Banque
Internationale à Luxembourg to the State of Luxembourg was continuing.

Though not stated directly, the execution of all three above were almost certainly conditions of the €90bn (£78bn $121bn ¥9.3tr Y769bn) aid offered by the Belgium, French and Luxembourg governments over the weekend. Costs will be divided 60.5% France, 36.5% Belgium and 3% Luxembourg for any aid provided. All three companies must have the aid authorised by parliamentary / state bodies before this is finalised.

When the European Commission ruled on remedies for the previous round of state aid it allowed Dexia to retain DenizBank, the Turkish bank it bought in 2006. There was no mention made of DenizBank in Monday's announcement and yet if sold it has the potential to raise a worthwhile contribution towards the rescue of other parts of the group. Denizbank paid around €2.4bn (£2.1bn $3.26bn ¥249.5bn Y20.7bn) for the bank in 2006/7, initially buying 75% and then tendering for the remainder. In addition it would be very unlikely that the European Commission would allow DenizBank to be retained by any vestiges of the old Dexia group. Perhaps the most likely reason for the failure to mention Denizbank is that there are already some secret talks for its disposal occurring. Zorlu, the seller of Denizbank to Dexia has not ruled out making a bid to buy it back.

Dexia shares suspended last Thursday were allowed to start trading at Monday lunchtime. The share price fell 30% in the first two hours of trading.