France, Belgium reach deal on Dexia

AFP - France, Belgium and Luxembourg announced on Sunday that they had reached a deal to dismantle troubled bank Dexia, the first victim of the eurozone debt crisis.

"The proposed solution, which is the result of intensive consultations between all involved parties, will be submitted to the Dexia board, whose responsibility it is to approve the plan," a joint statement said without elaborating.

French and Belgian prime ministers, Francois Fillon and Yves Leterme, held a lunch-time meeting to finalise the deal to dismantle the bank, which also had to be rescued in 2008 at the start of the global financial crisis.

Leterme said he hoped that Dexia's board of directors which met at 3:00 pm (1300 GMT) would rapidly approve the deal.

France and Belgium, Dexia shareholders after the 2008 bailout, needed to agree on the sale price of Dexia shares, including in its Belgian retail banking arm Dexia Bank Belgium that Brussels wants to buy, media reported.

They also needed to agree on the guarantees backing up a so-called "bad bank" that will remain after Dexia's dismantling to hold high-risk assets.

After the Dexia board meeting key members of Leterme's cabinet were to convene later Sunday to give their blessing to the deal of which no details were immediately known.

The NYSE Euronext stock exchange suspended trading in Dexia shares on Thursday following a request of the Belgian market regulator, FSMA.

Trading in the stock was halted during a session in which it had fallen 17.24 percent to 0.85 euros per share.

The bank's woes were to figure highly during a summit by the leaders of France and Germany, the eurozone's top economies, in Berlin where Chancellor Angela Merkel and President Nicolas Sarkozy will try to find common ground on a plan to recapitalise banks amid rampant fears of a credit crunch.

France and Belgium, who were forced last week to step in and rescue Dexia, are in disagreement over the price for Dexia Bank Belgium, which the Belgian state now wants to buy, according to media reports.

Belgium is seeking to pay the lowest possible price, a problem for French shareholders who want a lucrative deal and favour a transfer to another bank, said the Belgian economic daily l'Echo.

It estimated the price for the bank between three billion and 7.5 billion euros ($4 billion to $10 billion).

Belgian Finance Minister Didier Reynders said in a television interview on Sunday that Brussels was not excluding completely buying up the subsidiary.

"The state is going to substantially raise its stake," he said. "If we were at 100 percent, which I do not exclude, it is not our intention to stay forever. (But) That doesn't mean that we will stay for three or six months."

"I don't exclude that in three or five years, maybe more, we will still be present" in the bank, he said.

Several banks, including Deutsche Bank, Rabobank, Credit Mutuel and BBVA, have shown interest in Dexia Bank Belgium, said the Belgian press.

France and Belgium also need to agree on what share each government will cover in guarantees for the bad bank's portfolio.

France favours a division of 60/40 or even 65/35 with Belgium taking the bigger bite, said L'Echo. Paris fears that taking a bigger share may see it lose the top AAA credit rating that allows it to borrow cheaply on the international financial markets.

Credit ratings agency Moody's warned Friday that Belgium could be downgraded over its support for Dexia.

Dexia had relied heavily on money market funding for its operations, but such financing has become scarcer and more expensive for eurozone banks due to concerns over their sovereign debt exposure.

Also present at the meeting between the prime ministers on Sunday was a Luxembourg delegation to discuss the negotiations to sell Dexia's Luxembourg operations, Dexia BIL. Those talks are reportedly at an advanced stage with an unnamed international investor.

Meanwhile Russia's largest bank Sberbank is looking to acquire Dexia's Turkish subsidiary DenizBank, according to media reports.

And Germany's Der Spiegel magazine said Dexia's German unit was also fighting for its survival due to heavy exposure in indebted European countries.

The subsidiary Dexia Kommunalbank Deutschland AG made loans of 5.4 billion euros ($7.2 billion) to Greece, Italy, Portugal and Spain, which are all struggling with mounting debts, Spiegel said.