1 Oct 2008

Bailout for second Belgian bank

7:06 am on 1 October 2008

Dexia is the latest European bank to be bailed out as the deepening credit crisis shakes the banks sector.

After all-night talks the Belgian, French and Luxembourg governments said they would put in 6.4 billion euros ($US9 billion) to keep it afloat.

Shares in the Belgian-French bank fell 30% on Monday before being suspended on Tuesday as the bail-out was announced.

It is the second bank rescue in days by Belgium and its neighbours. On Sunday Fortis bank was partly nationalised.

This move came as global stock markets plunged after the US House of Representatives rejected a $US700 billion financial bail-out.

Dexia is the one of the world's largest lenders to local governments, but has run up significant losses in its US operations.

In a statement the French government said the rescue was necessary to "guarantee continuity of funding for local authorities".

The Belgian government and Belgian shareholders will invest 3 billion euros, the French government will also invest 3 billion euros via its state investment arm, while Luxembourg will put in just under 400 million euros.

US losses

Last month Dexia announced it was overhauling its loss-making US bond insurance unit, Financial Security Assistance - which made a loss of $330m in the second quarter of this year because of the sub-prime housing crisis.

The group has also been hit by the collapse of the US investment bank Lehman Brothers.

Dexia was created in 1996 from the merger of two banks which specialised in local government funding in Europe - Credit Communal de Belgique and Credit Local de France.

It was one of the first cross-border mergers in the European banking sector and currently has 5.5 million customers in Belgium, Luxembourg, Slovakia and Turkey.