The board of Belgian-French financial group Dexia planned to finalise a response to the financial crisis later on Monday as its shares crashed to a record low on a report it planned a capital hike. The bank's shares in Brussels hit a 12-year low of 6.75 euros, a drop of 32.8 percent, in early trading and were the weakest in the FTSE Eurotop 300.
The market capitalisation fell by some 4 billion euros ($5.74 billion) to 8 billion. The price of Dexia five-year credit default swaps - which reflect a market view on the likelihood of it defaulting on loans - more than doubled in the past month to 468 at close on Friday from 206.1 on August 27.
The Fortis CDS closed at 640 on Friday and BNP Paribas at 87 as its balance sheet is healthier. France's Le Figaro newspaper reported on Monday that Dexia planned a capital increase soon. Dexia declined to comment on the report, but a spokesman did say the group's liquidity was "very healthy".
Dexia's board held a special conference call on Sunday to discuss rival Fortis, which was partially nationalised by the Belgian, Dutch and Luxembourg governments. The Dexia board would hold another conference call towards the end of Monday, the spokesman said, adding it continued to evaluate its response to the global financial market crisis.
"The board has reviewed the state of play yesterday by telephone in the light of what was happening at Fortis. Another is planned later in the day after the announcements made regarding Fortis and the Paulson plan," the spokesman said.
"With the acceleration of the financial crisis over the past two weeks, Dexia is following the situation closely. In that framework, the management and the board are continuing to evaluate what will be the response by the group," he added. "The liquidity situation at Dexia is very healthy and the recent events around Fortis have no impact at all," he said.
Belgian Prime Minister Yves Leterme said that savers should be assured their money was safe and that Belgium would support Dexia if necessary. "Bearing in mind the specific circumstances of the company Dexia, which is different from Fortis, we will fulfil our responsibilities," he told Dutch-language broadcaster VRT.
Earlier, Finance Minister Didier Reynders told French-language radio RTBF that Fortis had not received preferential treatment. "What we do for Fortis it's clearly what we would do for all the other Belgian banks," he said without mentioning any banks by name.
Dexia, the world's largest lender to municipalities, last month unveiled an overhaul of its loss-making US bond insurance unit Financial Security Assurance (FSA).
The unit would be exiting riskier asset-backed business and would focus on its more stable core activity of funding government bonds after making a $330.5 million loss in the second quarter after impairment charges and increased reserves. On Monday, a source with close knowledge of the plan said the German government will provide the bulk of a 35 billion euro ($51.21 billion) credit guarantee to help Hypo Real Estate dodge a financing squeeze.
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