Dexia’s $1.2 Billion Loss Uses Up 13% of Latest Taxpayer Funds

Dexia SA, the bank being wound down at the expense of Belgian and French taxpayers, posted a first-half loss of 905 million euros ($1.2 billion), consuming 13 percent of the additional money both governments put up last year.

The figure includes a 299 million-euro decrease in the value of collateralized derivative contracts Dexia uses to swap fixed- into floating-rate interest income, according to a statement today, as the lender moved to the standard practice of measuring the value of future cash flows against overnight-indexed swap rates rather than interbank offered rates.

Dexia, based in Brussels and Paris, consumed 741 million euros so far of the 5.5 billion euros in additional capital it got from Belgium and France at the end of last year, which forced the bank into nearly complete government ownership. Clinging to government backstops and central-bank funding, the lender plans to run down its assets to about 150 billion euros by 2020 and gradually return to profit as of 2018, according to a May 8 presentation for investors. Loan loss provisions of 84 million euros in the six months through June were less than Dexia’s own estimate of an average 50 million euros per quarter in its resolution plan.

“Beyond volatility caused by accounting items or one-offs, the recurring result improved, driven by a reduction of funding costs over the second quarter,” Chief Executive Officer Karel De Boeck said in the statement.

Unrealized Losses

As the first-half loss was smaller than the decrease in unrealized losses accounted for directly through equity, Dexia’s shareholders’ equity increased to 3.11 billion euros as of June 30 from 2.85 billion euros at the end of last year.

Dexia aims to raise 5 billion euros to 6 billion euros selling medium- and long-term government-backed bonds through its French subsidiary Dexia Credit Local this year to reduce central-bank funding and diversify its financing sources. It sold 1.5 billion euros of 3-year notes last month which were priced to yield 1.016 percent, or 30 basis points more than Belgian government bonds of similar maturity.

Central-bank funding fell to 40.8 billion euros at the end of June, a 9.3 billion-euro reduction from six months earlier. Dexia didn’t have to use emergency liquidity assistance from the Banque de France in the period and collateral requirements decreased by 6.5 billion euros.

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