Dexia SA, the world's biggest lender to local authorities, will shrink by over a third under a deal reached with the European Commission over billions of euros in state help from the French and Belgian governments, the bank said Saturday.
European Union regulators have ordered cutbacks at many European banks that have received billions of euros from their governments, saying this is essential to counter the unfair advantage they gain over rivals. Dexia says it will sell off Spanish, Italian and Slovenian banking units and a Turkish insurance business over the next three years as it reduces its balance sheet by 35 percent by 2014.
The bank has already sold off a 20-percent stake in French lender Credit du Nord to Societe Generale and has agreed to sell its life insurance business Dexia Epargne Pension to BNP Paribas Assurance. It has also agreed to restrictions on dividends and hybrid debt and will refrain from acquisitions until the end of 2011.
Dexia says this will all allow it to exit state guarantees earlier than planned, by June 30. It also says it is in a good position to focus on its core business in France and Belgium and on expanding in Turkey. The French-Belgian bank is the biggest lender to French local governments and also lends widely to cities from Spain to the US Dexia confirmed a target of 15 percent in cost reductions, or ¤600 million under a plan that will also shed 602 staff.
It employs 35,500. Dexia ran up huge losses at a US bond insurance unit, forcing it to seek a ¤6.4 billion capital injection from France, Belgium and Luxembourg in 2008. It sold off the American unit, FSA Inc, in July. The French government is now the bank's largest shareholder with a 25 percent stake.
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