Dexia board in crisis talks after Moody's alert

Dexia's board was said to be in crisis talks last night after Moody's sounded the alarm over the Franco-Belgian bank's ability to fund its loans and put it on watch for a ratings downgrade.

The board was locked in discussions on strategic options that included breaking up the municipal lender, which was rescued in 2008 by the governments of France, Belgium and Luxembourg.

Moody's, one of the big two ratings agencies, cited concerns about the municipal lender's liquidity position as it placed Dexia on review for a downgrade that would further increase the cost of its borrowing.

Moody's said the review "is driven by concerns about further deterioration in the liquidity position of the group in light of the worsening funding conditions in the wider market".

Eurozone banks, and French lenders in particular, have had increased trouble raising funding for their lending in the markets. Investors have been cutting their exposure to banks perceived as at risk of a debt default by Greece or another peripheral eurozone country.

Dexia shares tumbled by more than 14 per cent during yesterday's trading and closed down 9 per cent at €1.317.

It received a €6bn bailout during the financial crisis in 2008, and is now a focus for market fears because, at €4.8bn, it has one of the biggest exposures to Greece among non-Greek banks.

Dexia's dual nationality could make a rescue a particularly complex operation with no spare cash left in government coffers.