Dexia


Dexia N.V./S.A., or the Dexia Group, is a Franco-Belgian financial institution formed in 1996. At its peak in 2010, it had about 35,200 members of staff and a core shareholders' equity of €19.2 billion.
In 2008, the bank entered severe financial difficulties and received taxpayer bailouts for €6 billion, and it became the first big casualty of the 2011 European sovereign debt crisis. Due to big losses, suffered among others from the debt haircut on Greek government bonds, and an orderly resolution process began in October 2011.
As part of the resolution, Dexia Bank Belgium was bought out from the Dexia group by the Belgian state and has continued to operate, since March 2012 under the new name Belfius. The French bank focused on local government lending was restructured as SFIL. The remaining part of the Dexia group was left in a "bad bank", still called Dexia, to be gradually wound down.

Profile

In the 2010 Fortune Global 500 Dexia was ranked 49th, the top-ranked Belgian company.
The company was founded in 1996 through the merger of Crédit Communal de Belgique and Crédit Local de France. The Dexia Group was founded as a dual-listed company, but in 1999 the Belgian entity took over the French entity to form one company. The company is headquartered in Brussels, Belgium. France and Belgium just injected another combined €5.5 billion into Dexia.

History

Belgium: Gemeentekrediet van België / Crédit Communal de Belgique

  • 1860 – Foundation of the Gemeentekrediet van België / Crédit Communal de Belgique, specifically aimed at financing the investments of the local administrations. The communities were shareholders, for a value of at least 5% of the amounts drawn.
  • 1947 – Development of a network of retail branches that allow drawing funds from the general public through savings accounts. From 1960 on the branches were run by independent agents, allowing a broader range of services and products to be offered and a lasting relationship with clients to be developed.
  • 1990 – Start of the international expansion of the bank with the creation of the Cregem International Bank in the Grand Duchy of Luxembourg, specialising in the management of large sums of money.
  • 1991 – The Gemeentekrediet builds on its international expansion by taking a stake of 25% in the Banque Internationale à Luxembourg, the biggest bank in Luxembourg. In early 1992 the firm increased its stake in BIL to 51%.

    France: Crédit Local de France

  • 1987 – Foundation of the Crédit Local de France as a successor to the CAECL ; it was a public administrative institution, managed by the Caisse des dépôts. The Crédit Local de France was a specialised financial institution responding to the needs of local administrations, that have become important economic agents in their own, and make as much use of products and services of the financial markets as businesses.
  • 1990 – The Crédit Local de France begins an international expansion with the opening of an American subsidiary, the CLF New York Agency. Aiming at a similar development in Europe, the CLF mainly operated in Great Britain, Spain, Germany and Italy; additional activities were later added in Austria, Scandinavia, and Portugal.
  • 1991 – Crédit Local de France underwent an initial public offering on the Paris Stock Exchange. The shareholders at the time were the French State, the Caisse des dépôts, and individual investors from France and abroad.

    Dexia: the group

  • 1996: Merger of the Gemeentekrediet / Credit Communal de Belgium and the Crédit Local de France to form Dexia.
  • 1997: Dexia takes a stake of 40% in the Italian firm Crediop, the biggest privately owned bank specialising in finance for Italian local administrations.
  • 1998: Dexia increases its shareholding in Crediop to 60%.
  • 1999: First listing of Dexia Group as a dual-listed company on the Brussels and Paris stock exchanges in November, at a price of €6.86 per share. In Belgium the stock became part of the BEL20 index, and in France of the CAC 40. The group broadens its insurance activities in France, Belgium and Germany. Dexia S.A. the Belgium side soon became the parent company of French side Dexia Credit Local.
  • 2000: Acquisition of Financial Security Assurance in the United States, a major player in credit enhancement for municipalities, making Dexia the world leader in the market of financial services to the public sector. Dexia is active in nearly all European countries in this market as well. Start of an annual reserved capital injection to which only Dexia members of staff can inscribe.
  • 2001: Acquisition of Artesia Banking Corporation, a banking group with activities as retail bank, insurance and asset management. The stake in Crediop grows to 70%, and Dexia gains control over Otzar Hashilton Hamekomi, an Israeli credit provider for local authorities.
  • 2002: Integration of the Artesia branches in Belgium.
  • 2006: Acquisition of 99.8% of the Turkish firm DenizBank.
  • 2006: Royal Bank of Canada created Institutional Investment Joint Venture with Dexia. It is a 50/50 Partnership called RBC Dexia Investor Services.

    Crisis 2008/2009

On 29 September 2008, Dexia came under pressure due to the 2008 financial crisis. Other banks and financial institutions refused to provide further credit to Dexia because of potential losses at its U.S. subsidiary FSA and from a multi-billion loan to troubled German bank Depfa. The price of the Dexia share, having peaked above €20 in the previous years, but gradually fallen to around €10, dropped in one day to €6.62.
The next day the rating agency Moody's downgraded Dexia's long term debt and deposits ratings from Aa1 to Aa3, and downgraded the individual banks' strengths to C− with a negative outlook.
Dexia was quickly forced to apply for a taxpayer bailout. This support was assured within days, taking two forms:
  • a capital injection of €6.4 billion, consisting of €3 billion from the Belgian State and regional governments, €3 billion from the French State and Caisse des Dépôts et Consignations and €376 million from the government of Luxembourg.
  • a state guarantee covering Dexia's liabilities towards credit institutions and institutional counterparties, as well as bonds and other debt securities issued for the same counterparties, for a total maximum amount of €150 billion. Belgium provided 60.5% of the guarantee, with a 36.5% contribution from the French state and 3% from Luxembourg.
The three states have the potential to make a profit from their intervention:
  • the new capital buys Dexia shares at a price of €9.90 per asset
  • for the state guarantee Dexia has to pay a monthly fee, from which the three states benefit proportionally to their share in the guarantee. The guaranteed amount varies continually as a function of Dexia's loans on the financial markets. It peaked mid-2009 at around €100 billion, but after Dexia managed to start selling non-guaranteed commercial paper and bonds again, fell to half this size by the end of 2009. In 2009 Dexia paid a fee of 0.5% on the guaranteed credits with a term of less than one year, and 0.865% on the credits longer than one year. The guarantee is currently planned to end in November 2010.
Since Dexia had a New York banking office they were eligible for various bailouts from the US Federal Reserve. At its peak Dexia had borrowed $58.5 billion.
On 30 September 2008 the company's chairman Pierre Richard and CEO Axel Miller were dismissed, and were replaced on 7 October 2008 by former Belgian prime minister Jean-Luc Dehaene and Pierre Mariani respectively. On 24 October 2008, Francois Rebsamen, the socialist Mayor of Dijon and a French Senator, vacated his place on the board of Dexia Credit Local, while Antoine Rufenacht, UMP mayor of Le Havre, Philippe Duron, socialist mayor of Caen, and Christophe Bechu, president of Maine-et-Loire province stayed.
At the end of 2008 Dexia sold the healthy parts of FSA, ceased its trading activities in Paris and trading on its own account in the financial markets.
Further losses are still possible on the remaining FSA portfolio. On 19 January 2009 Moody's lowered the credit rating for Dexia's long term obligations and saving accounts of the three banking parts of Dexia from Aa3 to A1. The rating agency also downgraded the Bank Financial Strength Rating for the three banks from C− to D+.
On 5 March 2009 Dexia's share price fell to an all-time low of €1.21, a loss of over 90% in a year. A further restructuring plan was announced, with the firm aiming to concentrate on its primary activities, and to avoid risks on the financial markets. A total of 1,500 job cuts were announced, of which more than half were in Belgium, 260 in France, and the rest worldwide. Dexia's share price subsequently increased over the rest of 2009, largely varying between €4 and €7.50.
On 31 March 2010 Bloomberg reported that Dexia was one of the largest borrowers from the discount window of the United States Federal Reserve, having outstanding loans of over $30 billion.

Losses

In February 2009 the bank announced net losses of 3.3 billion euros for 2008. The Dexia 2008 annual report mentions among others losses of €1.6 billion from selling FSA, €600 million on portfolios and €800 million on counterparties
According to the financial services provider Bloomberg Dexia lost €78 million through the Ponzi scheme of Bernard Madoff.

2010: Downsizing and reorganizing

On 6 February 2010 Dexia could announce that the European Commission had, under certain conditions, approved of the restructuring plan that was necessary to justify the government support for Dexia and to prevent unfair competition:
  • some acquisitions had to be undone but banking activities in Turkey, highly promising to Dexia, could continue.
  • by the middle of 2011 the State Guarantee had to be abandoned
  • in total Dexia had to downsize by one third by 2014.
Vintage retail activities represented a bigger share in profits again in 2010; apart from Belgium and France, Turkey became very promising in this area. So much so that predictions were that Turkish staff would account for half of the Dexia employees by 2014. At the same time, outgoing cashflows were diminished by reducing the bonds portfolio; even selling bonds at a loss, if necessary, which explained to a large extent the lesser profits in 2010.
More incoming funds from private saving accounts and less outgoing capital through bonds and loans to public institutions meant that Dexia could already worry a bit less about finding sufficient short term funding. The greater international trust in the company also showed when it announced an early retirement from the State Guarantee in 2010.