Dexia Unlikely to Need to Tap Guarantees in 2012, Coene Says

Dexia, once the world’s largest municipal lender, is being dismantled after concern over European sovereign debt caused its short-term funding to evaporate. Photographer: Jock Fistick/Bloomberg

Dexia SA, the French-Belgian lender being broken up after requiring two bailouts in three years, is unlikely to have to tap Belgian government guarantees in 2012, said Luc Coene, the head of Belgium’s central bank.

Dexia, once the world’s largest municipal lender, won temporary approval last month from European Union regulators for as much as 45 billion euros ($57 billion) in guarantees from Belgium, France and Luxembourg through May 31. The temporary guarantees, which allow the group to reduce reliance on central-bank financing, are “the first step” from the three governments to provide as much as 90 billion euros, Dexia said.

“I don’t see a problem of this guarantee being activated this year,” Coene, who also sits on the European Central Bank’s Governing Council, said in a joint interview with La Libre Belgique newspaper and RTBF radio published today. “Dexia ought to be able to get through the year without problems.”

Belgium’s government, which took over Dexia’s Belgian banking unit in October, is taking on 60.5 percent of the guarantees, which cover loans with maturities of as much as three years and will expire on May 31 unless the EU and the three countries agree to an extension.

Final approval of the program will be based on a restructuring plan due from the governments within three months, the EU said on Dec. 21, as newspaper Le Figaro reported today that the French part of the Dexia rescue plan may be at risk.

French Plan

Conditions for a plan agreed in October in which French state-owned Caisse des Depots et Consignations was to take 65 percent of Dexia’s French municipal business aren’t there anymore, said Michel Bouvard, chairman of the supervisory board of Caisse des Depots, according to the French newspaper.

In the current depressed economic environment, Dexia Municipal Agency’s takeover would cost Caisse des Depots about 2 billion euros of shareholders equity, which would lead to “very stretched” financial ratios, the newspaper said. Nationalizing the French units of Dexia is one of the possible solutions, Bouvard said, according to Le Figaro.

France’s shareholding agency head Jean-Dominique Comolli rejected the idea of nationalizing Dexia Credit Local and Dexia Municipal Agency during a Jan. 6 meeting with Dexia Chief Executive Officer Pierre Mariani, Le Figaro reported, citing an unidentified participant at the meeting.

Benoit Gausseron, a spokesman for Dexia, and Benjamin Perret, a spokesman for Caisse des Depots, declined to comment.

‘Heightened Risk’

Ratings companies Standard & Poor’s and Moody’s Investors Service are reviewing France’s sovereign credit grade, while Fitch Ratings cut France’s credit outlook on Dec. 16 on the “heightened risk of contingent liabilities” from the euro-region crisis.

Moody’s Investors Service cited potential liabilities from Dexia’s breakup in lowering Belgium’s credit rating by two steps last month. Moody’s move followed a one-step downgrade by Standard & Poor’s on Nov. 25.

In the interview, Coene also said that Hungary’s political and economic woes don’t pose a threat to Belgium’s KBC Groep NV, which has operations in that country.

“The exposure isn’t of a nature that puts the bank in peril,” Coene said. “The situation will probably stabilize because the Hungarians will have to reach an agreement with the International Monetary Fund and European Commission.”

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