Belfius Bank NV, nationalized by the Belgian government, will be able to refocus on its core banking and insurance businesses as part of a restructuring plan approved by European Union regulators that will wind down most of Dexia SA.
The European Commission authorized the “orderly resolution” of the Dexia group, the sale of its refinancing unit for French local authorities, known as Dexia Municipal Agency, and the restructuring of Belfius, the EU regulator in Brussels said today in a statement. Dexia shareholders last week voted to continue the company’s activities, approving a 5.5 billion-euro ($7.25 billion) capital increase by the Belgian and French governments and avoiding a default on 386.5 billion euros of debt. Belgium in 2011 bought the local consumer-banking unit, now called Belfius.
State aid for Belfius “is limited to the minimum necessary to enable its return to long-term viability,” the EU said. Belfius “will not distribute profits in order to reinforce its regulatory capital, it will reduce risky business lines and will refocus on its core markets of financial services to the public and quasi-public sector as well as retail and insurance businesses.”
The EU approval also allows Dexia to receive state guarantees of 85 billion euros and the recapitalization from France and Belgium. The bank, whose shares have lost almost all their value, reported a loss for the third quarter of 1.23 billion euros.
“The approved plan ensures that the continued market presence of some parts of the Dexia group is truly justified, without artificially keeping alive a failed business model,” EU Competition Commissioner Joaquin Almunia said in the statement. The plan also ensures “that competition distortions resulting from the aid received are minimized,” he said.
The financial-assistance measures for Dexia are in line with EU state-aid rules for banks during the financial crisis, because “the residual group will exit from the market altogether” and cease to engage in competing activities, the commission said.
As part of the Belfius restructuring plan, “adequate commitments” have been made “to limit competition distortions in the core markets of banking and insurance where it is active and to ensure that Belfius will adequately contribute to the costs of its own restructuring,” according to the statement.
“The group will not distribute profits in order to reinforce its regulatory capital,” the commission said. And Belfius can’t increase its market share in core activities during the restructuring period, it said.
Belfius doesn’t plan “any major acquisitions before the end of 2014,” the company said in a statement after the EU ruling. “Belfius will continue to act fully as a banker-insurer to the public and social sectors.”
Most of Dexia will be wound down, ending what Almunia last week called “the largest bad bank in the EU,” with assets of more than 300 billion euros. Dexia Municipal Agency will be coupled with a new development bank in France that will “exclusively grant loans in sectors where there is a well identified market failure,” the commission said.
Caroline Junius, a Paris-based spokeswoman for Dexia, wasn’t immediately available to comment.
Dexia needed additional capital after its statutory equity was wiped out following a “significant” writedown on its stake in its French municipal-lending unit, Dexia Credit Local, according to the invitation to the Dec. 21 shareholders meeting. La Banque Postale, the banking arm of France’s postal service, and Paris-based Caisse des Depots & Consignations will participate in the new French development bank.
France and Belgium, which wrestled for more than a year over a second rescue of Dexia, agreed last month to the capital increase and to charge the bank less for its government funding guarantees. Dexia was rescued initially in 2008 and last year became the first casualty of the sovereign-debt crisis at the core of Europe.
Dexia said on Dec. 4 that it was in talks to sell its asset-management business to GCS Capital for an undisclosed sum. The transaction is one of the last disposals as part of the planned breakup announced in October 2011 after the lender lost access to short-term funding. Dexia sold banking units in Turkey and Luxembourg earlier this year.
Under Dexia’s recapitalization plan, the company will sell 28.9 billion preference shares for 19 cents apiece to Belgium and France, giving the two states more than 90 percent of the company. The two nations won’t be obliged to make a mandatory public offer for the rest if they hold more than 30 percent after the transaction, Dexia said on Nov. 14.