Sept. 30 (Bloomberg) -- Belgium and France threw Dexia SA a 6.4 billion-euro ($9.2 billion) lifeline and ousted the chairman and chief executive officer as the widening financial crisis forced governments to prop up institutions across Europe.

Dexia, the world's biggest lender to local governments, rose 6.1 percent in Brussels trading after Belgium's federal and regional governments, France and the bank's largest shareholders agreed to fund a rescue. CEO Axel Miller and Chairman Pierre Richard will leave once replacements are found, Dexia said today.

The capital infusion for Brussels- and Paris-based Dexia comes two days after Belgium, the Netherlands and Luxembourg agreed to inject 11.2 billion euros into Fortis, the largest Belgian financial-services company. Britain seized Bradford & Bingley Plc, the U.K.'s biggest lender to landlords, while Germany bailed out Hypo Real Estate Holding AG.

``Things have accelerated brutally,'' said Christophe Ricetti, a Paris-based analyst at Natixis SA who has a ``reduce'' rating on Dexia.

Dexia rose 43 cents to 7.50 euros in Brussels, following yesterday's record 30 percent decline. The shares have fallen 57 percent this year, cutting the market value to 8.7 billion euros.

Coping With Markets

The Belgian federal and regional governments and shareholders will invest a combined 3 billion euros, Dexia said in an e-mailed statement. The French government will invest 1 billion euros and Caisse des Depots et Consignations, France's state-owned bank, will put in 2 billion euros. The Luxembourg government will buy 376 million euros of notes convertible into shares of Dexia's unit in the country.

``This is done to make Dexia able to cope with what is going on in the financial markets,'' Belgian Prime Minister Yves Leterme told reporters in Brussels.

Dexia, which employs about 35,000 people in more than 30 countries, generates about half its profit from arranging loans for municipalities from Mexico to Japan, funding infrastructure projects and insuring U.S. municipal bonds. The company also provides financing to half of the France's local governments, French Finance Minister Christine Lagarde said at a press conference in Paris today.

``The liquidity situation was such that, if not treated quickly, it could have placed the bank into a failure situation,'' said Lagarde, 52. ``There was no possibility to take a systemic risk'' by letting the company collapse, she said.

France's CDC, based in Paris, will become Dexia's largest shareholder with 19.3 percent, up from 11.9 percent currently, Dexia said. The French government, the Belgian federal government and the Belgian regions will each own a 5.7 percent stake.

Bigger Plan?

European governments are stepping in to protect banks as the financial crisis that drove New York-based Lehman Brothers Holdings Inc. and Seattle-based Washington Mutual Inc. into bankruptcy spreads. Ireland's government said today it will guarantee Irish banks' deposits and debts for two years, seeking to restore confidence in the country's financial industry.

In the U.S., the Standard & Poor's 500 Index tumbled the most since the 1987 crash yesterday after the House of Representatives rejected a $700 billion plan to rescue the financial system. Some of the country's biggest banks rushed into deals. Citigroup Inc. agreed to buy the banking operations of Wachovia Corp., while Morgan Stanley sold a 21 percent stake to Japan's Mitsubishi UFJ Financial Group Inc. for $9 billion.

`Bosses Change'

European leaders, who last week criticized the U.S. for allowing its banks to run out of money and resisted calls for a joint rescue plan of their own, may be forced to recommend a comprehensive approach as well, said Lena Komileva, an economist at Tullett Prebon Plc, the second-biggest broker of transactions between banks, in London.

Lagarde said France and Belgium decided to replace Dexia's Miller, 43, and Richard, 67. Top managers were also shown the door in the U.S. rescue of American International Group Inc. this month and the nationalizations of Fannie Mae and Freddie Mac.

``The bosses change, the company remains,'' Miller said on a conference call. ``You cannot risk people's jobs or clients' and shareholders' money by not being proactive.''

Lagarde said she isn't ``worried'' about France's banks. She told the France's Senate finance committee the government may finance its investment in Dexia either by using funds raised when it sold stakes in Electricite de France SA or by adding debt into the 2009 budget law.

Curbing Risk

Dexia came under pressure after bailing out Financial Security Assurance Inc., its New York-based bond insurance unit. Dexia agreed in August to provide $300 million to FSA after provisions tied to the subprime crisis led to a loss at the unit. The bank had already pledged a $5 billion credit line to FSA in June, and injected $500 million into the unit in February.

Dexia also took responsibility in August for the $17.3 billion in invested assets at FSA's financial products unit, which includes $7.6 billion of subprime mortgage-backed securities. Miller said at the time that Dexia would stop insuring asset-backed debt and structured finance, scale back FSA's financial-products division and take over its risks.

The bank said today that the FSA credit line will be turned into ``an equally sized repo facility'' to reduce risk.

Shareholdings Change

Dexia's tier 1 capital ratio, a measure of the lender's ability to absorb losses, will probably rise above 14 percent after the capital increase, Miller said. The ratio currently stands at about 10.5 percent, after 350 million euros of losses tied to Lehman's bankruptcy in the third quarter, Chief Financial Officer Xavier de Walque said.

Dexia also capped further capital injections into FSA's financial products unit at $500 million, Miller said. ``We don't want to be taken by surprise by evolutions in an extremely volatile market,'' he said.

After the bailout, the stakes of some of Dexia's biggest investors will change. Holding Communal SA, owned by Belgian municipal governments, will have its stake cut to 14 percent from 17 percent, according to Dexia. The stake of Arco, the financial investment firm controlled by the Flemish Christian workers union, will decline to 13.9 percent from 18.1 percent. Ethias Group, Belgium's second-largest insurer, will have a 5 percent stake in Dexia and CNP Assurances SA, France's largest life insurer, will own 1.3 percent.

To contact the reporters on this story: Fabio Benedetti-Valentini in Paris at fbenedettiva@bloomberg.net; John Martens in Brussels at jmartens1@bloomberg.net.

Last Updated: September 30, 2008 12:28 EDT