February 21, 2013 11:50 am

Dexia at ‘turning point’ amid more losses

Dexia, the thrice bailed-out Franco-Belgian lender, reported a second consecutive year of losses in 2012, although the bank stressed that the past year marked a turning point after being on the brink of collapse since 2008.

The Brussels-based group said on Thursday that it had suffered net losses last year worth €2.9bn ($3.9bn) compared with a net loss of €11.6bn in 2011.

The losses incurred were driven by the dismantlement of the lender, a condition for its second bailout.

Dexia was forced to sell its stake in Turkey’s DenizBank to Russia’s Sberbank as well as its Luxembourgish private banking unit and its French public lending arm.

“The results for the year 2012 reflect the progress made on the resolution plan,” said Karel De Boeck, chief executive of Dexia.

“In particular, the disposal of a major proportion of the Group’s operating entities weighed on profitability, whilst the cost of funding remained very high over the year, awaiting the introduction of a perennial funding scheme.”

Dexia, once the world’s largest municipal lender, was one of the first European banks to be hit by the US subprime mortgages meltdown and later by the eurozone sovereign debt crisis that engulfed the 17-country single currency bloc.

The Belgian, French and Luxembourgish governments’ first bailout was in 2008 when they injected €6.4bn into Dexia in the aftermath of the US driven credit crunch.

However as the lender struggled to emerge from the subprime crisis, the eurozone’s debt woes encumbered further Dexia’s fate, forcing the new owners of the nationalised bank to extended financial guarantees worth €90bn to rescue it.

The final bailout was agreed in November, when France and Belgium agreed to place a further €5.5bn of fresh capital into the bank.

Dexia, which Europe’s top antitrust official Joaquín Almunia defined as “the largest bad bank in the EU”, is now slowly getting back on its feet, although its stock value has completely evaporated to €0.05, compared with a peak of €22.56 in May 2007.

Mr De Boeck said earlier this year that the stricken lender would return to the market to borrow €40bn as it aims gradually to stop receiving “Eurosystem” financing.

In the spring the bank will embark on a roadshow around the globe to convince investors that it’s a reliable borrower backed by three eurozone governments that have clearly expressed their commitment to keep it afloat.

“The business plan relies on the hypothesis of a restoration of confidence on the capital markets,” Dexia said on Thursday. “If the market’s absorption capacity proves to be insufficient, Dexia would have to call on more costly funding sources.”

Dexia hopes to return to profitability by 2018, according to Mr De Boeck.

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