Dexia Bank Swings to Loss, Sees Former Parent Repaying Loans

Dexia Bank Belgium SA, the former Dexia SA (DEXB) unit now owned by the Belgian government, swung to a loss last year on Greek debt writedowns and said its former parent will repay all remaining unsecured loans this month.

The 2011 net loss of 1.37 billion euros ($1.83 billion) compares with profit of 678 million euros a year earlier, the Brussels-based lender said today in a statement. Shareholders’ equity fell to about 3.3 billion euros, about 700 million euros less than what Belgium paid to take over the bank and insurer.

Chairman Alfred Bouckaert said Dexia Bank, which will gradually adopt the brand name Belfius starting today, doesn’t need to raise capital and won’t seek any other government backstops. Its key priority after halting a decline in customers’ deposits is to reduce outstanding loans to Dexia’s French bank unit. Chief Financial Officer Johan Vankelecom also said the lender is waiting for Belgium to pass legislation enabling the issuance of covered bonds.

“With parliamentary approval possible before the summer holiday, we could start selling covered bonds as early as the third quarter,” Vankelecom told reporters in Brussels today. “With a sizeable portfolio of residential mortgages and public- finance loans, Dexia Bank has the perfect balance sheet to become an issuer of covered bonds.”

LTRO Money

Dexia Bank said its former parent will sell additional state-guaranteed debt “in coming days” and use the proceeds to repay the remaining unsecured loans it got from its former Belgian bank unit. Dexia Bank bought 13 billion euros of the 22 billion euros of government-backed debt Dexia’s French banking unit sold so far. Secured lending to Dexia will drop to about 28 billion euros by the end of March, according to Dexia Bank.

Chief Executive Officer Jos Clijsters said Dexia Bank took 15 billion euros of three-year loans from the European Central Bank yesterday and, unlike its former parent, isn’t clinging to emergency loans from central banks. Vankelecom said the bank currently has “some reserve” of eligible collateral left.

Dexia Bank’s funding from retail customers, corporate clients and public authorities increased to 78.3 billion euros at the end of January from 76.2 billion euros at the end of November and its loan-to-deposits ratio is “close to equilibrium,” according to Clijsters. Still, Dexia Bank is losing retail clients at a rate of about 2,000 a month, net of additions, and funding from retail customers has declined by about 2.5 billion euros from a peak of 63 billion.

Holding Communal

Last year’s 1.37 billion-euro loss included a 1.31 billion- euro on Greek government bonds and 246 million euros of provisions, including for losses on loans to Dexia shareholder Holding Communal SA. Dexia Bank also set aside 36 million euros for expenses associated with the name change for two years.

Dexia’s core Tier 1 capital fell to 11.8 percent of risk- weighted assets of about 53 billion euros from 13.6 percent at the end of 2010. It would have been 12.4 percent following the buyback of 459.2 million euros of perpetual subordinated notes at a 75 percent discount to face value that was completed today, according to Vankelecom.

The lender and its insurance subsidiary still held a combined 6.48 billion euros of Italian, Spanish, Greek, Irish and Portuguese government debt at the end of last year after the Greek writedowns and the sale of about 500 million euros of Italian bonds in the fourth quarter.

To contact the reporter on this story: John Martens in Brussels at jmartens1@bloomberg.net

To contact the editor responsible for this story: Jerrold Colten at jcolten@bloomberg.net

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