France and Belgium vow to stand behind Dexia

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The Independent Online

France and Belgium yesterday pledged support for Dexia to stop the bank's woes spilling out into the financial system and heightening the eurozone debt turmoil.

The crisis-hit bank will be split into a "bad bank" backed by the two governments and a "good bank", with asset sales a key part of the plan.

The governments tried to calm fears about Dexia's future but the bank's share price was pummelled for the fourth straight day. At one point the shares fell 38 per cent to an all-time low of 81 cents before closing down 22.5 per cent.

France and Belgium bailed out the dual-listed bank in 2008 with a €6bn (£5bn) capital injection but they are unwilling to pump in more money with government coffers depleted by the crisis.

The bank's €4.8bn total exposure to Greek debt is one of the biggest of non-Greek banks. Under bailout terms under discussion, banks are likely to be forced to make big writedowns on the value of Greek debt, causing Dexia to be frozen out of the market for bank funding. Assets for sale are set to include the Belgian retail bank and Dexia's Turkish business, Denizbank.

The Turkish arm was the subject of a fierce bidding battle in 2006 between Britain's Standard Chartered and Dexia. The emerging markets specialist UK bank refused to match Dexia's high price at the time and might be tempted by a fire sale with few other banks strong enough to do a deal.

Standard Chartered declined to comment yesterday. Analysts said other potential suitors for Denizbank could include Italy's Banca Intesa, which bid last time, and Russia's Sberbank.

Dexia was the biggest faller on a day of panic for bank shares as investor fears were raised that lenders would need more capital injections to withstand losses from the eurozone crisis.

JP Morgan analysts calculated that the region's banks could need hundreds of billions of euros in new capital under a stressed scenario.

Deutsche Bank yesterday scrapped its €10bn profit target for this year as it made further writedowns on Greek debt and blamed a major slowdown in client activity. Société Générale, which has suffered ebbing investor confidence, said its long-term funding needs for 2012 would be half this year's and that it could cope without US money market funding.

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