Belgian-French financial services group Dexia got a €6.4 billion capital boost from public shareholders today as a deepening global credit crisis shook European banks.
After all-night negotiations the Belgian government announced that it and other Belgian stakeholders would invest €3 billion, the French government €1 billion and French state-controlled Caisse des Depots (CDC) €2 billion.
The Luxembourg government would also invest €376 million in Dexia, created in the 1990s out of Belgian and French municipal lenders.
Dexia's shares, which fell by nearly 30 per cent yesterday, were suspended on the Euronext exchange as Prime Minister Yves Leterme announced details of the second banking rescue in three days.
The Benelux governments bailed out its rival Fortis late on Sunday with a partial nationalisation designed to protect savers and restore confidence.
Within 24 hours Leterme had to bring together Belgium's regional governments and representatives of France and Luxembourg to strengthen Dexia's balance sheet.
Dexia had a core of shareholders holding 51.9 per cent of the company, including French state-controlled Caisse des Depots (CDC) with 11.7 per cent and Belgium's communal holding group with 16.2 per cent.
French president Nicolas Sarkozy's office said the rescue would give CDC more than 25 per cent of Dexia, a blocking minority under Belgian law.
The decision was taken to "guarantee continuity of funding for local authorities," the French statement said.
The latest Belgian rescue occurred as stock markets crashed after the US House of Representatives rejected the $700 billion bailout package proposed for the US financial sector, plunging the world into deeper economic uncertainty.
The price of Dexia's five-year credit default swaps - which reflect a market view on the risk of it defaulting on loans - more than doubled in the past month to 468 at close on Friday from a better 206.1 on August 27th.
The Fortis CDS closed at 640 on Friday and BNP Paribas at 87 because its balance sheet is healthier.
Dexia, the world's largest lender to municipalities, last month unveiled an overhaul of its loss-making US bond insurance unit Financial Security Assurance (FSA).
Reuters