BRUSSELS - Another half a billion euros was wiped off the market value of Dexia on Tuesday as investors grew increasingly concerned about its survival in its current form despite government promises to prop up the bank and insure every cent of its deposits.
Belgium's caretaker prime minister promised that his government and France's were ready to help Dexia, while the finance ministers from both countries also pledged to back the bank's financing needs via government guarantees.
Dexia is at the forefront of investor concerns over its exposure to potentially bad debt from Europe's most indebted countries. With the markets pricing in a Greek debt default soon, investors are very fidgety about what debts Europe's banks are holding.
The Franco-Belgian bank's stock began its plummet Monday after Moody's warned it could be downgraded, leading the board of directors to call an emergency meeting. It was down another 24 per cent Tuesday.
In a vaguely worded statement in the early hours of Tuesday, Dexia's board said it would resolve its "structural problems" but gave no details. There has been speculation the bank will be split up with support from the French and Belgian governments — both of which have stakes in the bank following a 2008 bailout.
"We promised to all accountholders and savers that they would not lose a eurocent in the crisis. There is no reason for that," Yves Leterme, Belgium's caretaker government, said Tuesday on the VRT network.
Referring to the "tough situation of the eurozone crisis," Leterme said the Belgian government was "firmly committed" to helping Dexia without anyone losing out, adding that Belgian and French authorities were in discussions to see how they can "co-operate in solidarity as shareholders to lead Dexia through this tough time."
Belgian newspapers reported Tuesday that the bank would be split, and that its healthy parts — Denizbank of Turkey, Dexia Asset Management, Canadian RBC-Dexia BIL joint venture and Dexia Bank Belgium — would be sold individually this year, if possible.
Revenue from the sales, along with state guarantees from France and Belgium, will be used to prop up Dexia's toxic leftovers — France's Dexia Credit Local, Italy's Crediop and Spain's Sabadelln — in a so-called "bad bank," according to the De Standaard and De Morgen newspapers.
Dexia got a government and shareholder bailout in late 2008 when Belgium, France and Luxembourg said they would inject almost €6.4 billion to keep it afloat.
The bailout led to Dexia being owned 17.6 per cent by France's sovereign wealth fund, the Caisse des Depots et Consignations. The French and Belgian governments each own another 5.7 per cent of the bank, and three Belgian regional authorities jointly hold another 5.7 per cent stake.
Dexia ran into trouble with its U.S. bond insurance unit, FSA, during the U.S. subprime crisis, in which loans made to people with poor credit dropped sharply in value because of worries that borrowers would not be able to meet their repayments. Holders of bonds based on those mortgages suffered heavy losses.
Dexia was forced then to take a bailout. Since then, it has worked to shore up its finances, and the statement it issued Tuesday said it was making progress.
But Europe's worsening debt crisis and the resulting reluctance among banks to lend to one another have exacerbated Dexia's troubles. It has significant exposure to Greek and other risky debt.
Assurances from Belgian Finance Minister Didier Reynders have done little to calm investors. The bank's stock was down over 20 per cent, on top of Monday's around 10 per cent decline.
Reynders told reporters before a meeting of European Union finance ministers on Tuesday that both France and Belgium were ready to help.
"We have seen some possible action from the two governments, French and Belgian," he said. "We need to read all the proposals coming from the bank, and, if it's needed, we will act."
DiLorenzo contributed from Luxembourg. Greg Keller in Paris and Robert Wielaard in Brussels contributed to this report.