Belgium will nationalise Dexia this weekend
Franco-Belgian bank Dexia is being officially nationalised.
Belgian newspaper De Tijd writes:
The federal government wants to become sole owner of Dexia Bank Belgium and Dexia Group’s subsidiaries before the end of the weekend. Thereafter, the regional governments can step into the capital structure. That is the direction the government is marching Prime Minister Yves Leterme said Friday afternoon during a meeting with some union representatives.
Meanwhile, Dexia’s board of directors will examine the possible dismantling of the group on Sunday and not on Saturday, as has been previously stated.
The federal plan involves the government capital remaining in place at the bank for several years.
The provinces that had opposed a takeover of the bank by the federal government, seem more or less to agree with that federal plan. [my translation]
Dutch paper de Staandard writes:
Our editors have learned from reliable sources that the regions and the federal government have now agreed that a nationalization of Dexia Bank will probably see the federal government retain ownership for several years,
Under current plans, the federal government will buy the bank this weekend, so that Monday the stock markets will open reassured. However, first an agreement must still to be found with the French government. In a second phase, the regions have the opportunity to participate in the capital of the bank.
These are credit events for the Belgian sovereign. Expect the ratings agencies to take note.
It all depends on the terms of the nationalisation. If it involves the bail out of shareholders and bondholders I can see further problems ahead. If they wipe out both these two groups then it protects the sovereign. I suspect however that they have made the mistake of making it a bail out at the same time. Taxpayers will be left with the junk and debt and problems for years to come.
Interesting take on Dexia’s failing from Jim Bianco on Yahoo! Finance: https://finance.yahoo.com/blogs/breakout/why-americans-care-failing-european-bank-dexia-165732982.html
He likens Dexia to Bear Stearns in 2008, and he makes some very interesting points, although I think the interview was a few hours prior to the nationalization announcement.
He mentions that Derivatives make up a big slice of Dexia. That means Geithner will insist on a rescue to protect Goldman Sachs and other US banks. So you can now write off Belgium as a dead duck. Dexia liabilities will probably crush that sovereigns financial status. It needs to do an Iceland rather than an Ireland.