BRUSSELS, Nov 8: France and Belgium have agreed to pump 5.5 billion euros ($7.02 billion) into Dexia, the stricken lender the two states were forced to bail out a year ago, the Belgian finance ministry said on Thursday.
The prospect of throwing more money into Dexia, which already absorbed 6.4 billion euros in funds in 2008, threatens to undermine both countries’ efforts to rein in their deficits at a time of intense scrutiny of euro zone budgets.
Belgium will inject 2.915 billion euros, or 53 percent of the amount, with France providing the remaining 2.585 billion euros, the ministry said in a statement.
The two states would receive in return preference shares with voting rights, so that any financial gains Dexia might make would then flow back to them.
As part of the deal, the two governments have also agreed to readjust the division of guarantees to cover Dexia’s borrowings.
In future, Belgium would take on 51.41 percent of these guarantees and France 45.59 percent.
Previously the share had been Belgium on 60.5 percent of the guarantees and France 36.5 percent. Luxembourg would continue to provide 3 percent.
The guarantees themselves would be limited to a maximum of 85 billion euros, compared with the 90 billion euros agreed a year ago.
The capital injection will require approval from Dexia shareholders, most of them French or Belgium public entities as well as France and Belgium themselves.
The whole operation will also need clearance from the European Commission, which has so far given the green light to guarantees for a limited period.
Dexia submitted its restructuring plan to the Commission in March. The plan envisages Dexia essentially pared down to a holding of bonds and outstanding loans propped up by state guarantees.
Belgium has nationalised Dexia’s retail banking operations there and the lender has sold other assets including Luxembourg-based private bank Dexia BIL, Turkey’s DenizBank and its 50 percent state in funds services joint venture with Royal Bank of Canada.
It still has to divest its asset management business and its French public sector lending arm. ($1 = 0.7840 euros) (AGENCIES)
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