“Dexia was not a bank but a hedge fund”

This comes via Belgian daily de Staandard:

[Dexia CEO Pierre} Mariani and [Chairman Jean-Luc] Dehaene Dexia’s took over leadership in 2008 after the Belgian and French governments had intervened to prevent the company’s collapse the first time. Dehaene stated that Mariani confided to him then, after a review of the group, that Dexia was more like a hedge fund than a real bank. During the three years that we were at the helm of Dexia, we have done everything to build a better risk profile, but the euro crisis has thrown a spanner in the works. That is the explanation of both top men.

They illustrated their message with numbers. The portfolio of toxic assets grew from $40 to 260 billion between 2006 and 2008, but has since been reduced to "less than 100 billion". The short-term financing of long term loans in 2008 accounted for 43% of the balance sheet, an "aberrant situation," according to Mariani. That percentage has been reduced to 19%. [My translation]

If you recall Global Macro Monitor’s post on Europe’s Bank Problem last week, the IMF chart showed very well how banks were struggling to wean themselves from short-term funding sources and increase tangible common equity. The Belgians had made Herculean strides in this effort. But it has not been enough.

Source: “Dexia was geen bank, maar een hedge fund"

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