BRUSSELS -- Franco-Belgian bank Dexia SA gave fresh details of
its European Union-backed plan for winding down the bank, warning
that earnings would be hit by high borrowing costs and expenses
related to asset sales.
The details emerged days after EU authorities on Friday gave
their formal backing to the wind-down of the bank, which has
received three bailouts in four years and is now largely a holding
company for illiquid loans and sovereign debt from troubled
euro-zone countries. Dexia nearly collapsed in October 2011 as
concerns about the euro zone left it unable to fund itself.
On Monday, Dexia said the revised resolution plan would give it
a year to sell its holdings in Popular Banca Privada and Sofaxis
and either sell or wind down Dexia Bail Regions, Dexia Bail, Dexia
LLD and Dexia Flobail. Dexia would also have 12 months to sell its
Dexia Israel unit.
Most other units, including Dexia SA itself, will be wound down
over time until all outstanding loans mature. Belgium nationalized
the domestic unit of the bank last year, renaming it Belfius.
Dexia said its municipal lending unit, Dexia Credit Local, will
be allowed to grant new credits of up to EUR600 million ($793
million) between 2013-14 to reduce the overall riskiness of its
loan portfolio.
Under the plan, Dexia said its balance sheet, which has shrunk
41% to EUR384 billion since the end of 2011, would shrink to EUR150
billion by end-2020 with a further "marked reduction" by 2025. The
bank said in the absence of any major credit shock, 86% of its
assets would have investment-grade ratings in 2020.
Dexia said with the planned asset disposals, it will have a
"robust" solvency base but that the group's net income "will be
impacted by exceptional elements in 2012 and 2013," including the
cost of asset sales and expensive funding.
Friday's EU approval for the deleveraging plans ended a year of
wrangling over Dexia's future, in which the commission has had to
fight hard to force the price of failure onto an institution that
two national governments had considered important to their
respective economies.
Besides fighting the commission over the dimensions of Dexia's
resolution, Paris and Brussels have also frequently been at odds
over how to divvy up the costs of supporting it.
Dexia on Monday also gave more detail of the spinoff of Dexia
Municipal Agency, or DMA, an entity that refinances DCL's loans to
local and regional administrations by issuing covered bonds. French
authorities plan to set up a new financing program for the local
public sector from Dexia's ashes.
DMA will be sold for EUR1 to a new credit institution in which
the French government owns 75%, Caisse des Depots et Consignations
France holds 20% and La Banque Postale initially holds the
remaining 5%. The shareholders will provide liquidity for the new
lender on completion of the sale, enabling DMA to repay outstanding
funding from DCL. Operational links between DMA and DCL will end
after six months.
The plan is a major concession by Paris, which is now directly
and indirectly accepting complete financial responsibility for DMA.
Under the original resolution proposal, Dexia would have had to
retain responsibility for nearly a third of the costs.
Dexia also gave final details of the financial support it will
receive in coming years. It confirmed the group will receive EUR85
billion in debt guarantees first pledged in late 2011, with Belgium
guaranteeing 51.4%, France 45.6% and Luxembourg 3%.
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