Month of bailouts continues with Dexia rescue

The move came a day after pan-European financial services group Fortis received an €11.2 billion bailout package from the governments of Belgium, Luxembourg and the Netherlands, and the nationalisation of UK bank Bradford & Bingley.

Dexia, which uses the advertising slogan “short-term has no future”, will receive €3 billion from the Belgian authorities and private investors, €1 billion from the French government, and a further €2 billion from the state-owned bank Caisse des Depots. The Luxembourg government is investing €376 million.

The French and Belgian investors will receive stock in Dexia valued at €9.90 per share, the average closing price over the past 30 days. The government of Luxembourg will receive newly issued convertible bonds.

Pierre Richard, the chairman of the board of directors, and Axel Miller, the chief executive officer, submitted their resignations, which were accepted by Dexia’s board. They will remain in their posts until successors have been found.

“Due to the significant deterioration in the business and market environment, and the financial distress of a number of financial services companies, Dexia made a careful assessment of its situation and decided to take decisive action and raise €6.4 billion of capital,” the bank said.

In an additional restructuring effort, Dexia will convert the $5 billion unsecured liquidity line to its US monoline subsidiary, Financial Security Assurance (FSA), into an equally sized repo facility. Dexia also agreed to make a $500 million capital injection into FSA, to cover losses on its structured credit business. “This will allow FSA to avoid divestments at distressed prices, while capping Dexia’s support and limiting its downside exposure,” the bank said.

See also: Nationalisation remedy prescribed for B&B and Fortis

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