"Dexia May Be Left as Bad Bank as Governments Shun Injections" (Bloomberg / BusinessWeek article) http://www.bloomberg.com/news/2011-...-governments-avoid-injecting-new-capital.html Quote: "Under the option most favored by the French, the two governments would guarantee Dexia's borrowings before splitting up the lender, said the people, who declined to be identified because the talks are private. Belgium may then assume Dexia's assets in that country, while France's state-owned La Banque Postale and Caisse des Depots et Consignations would buy Dexia's French municipal-lending unit, leaving Dexia as the âbad bank,â the people said. "That would avoid an immediate recapitalization of the Belgian municipal lender, which would then sell its legacy assets over time, the people said. " ********* OK, maybe I'm just a cynical observer, but this sounds like the July 2008 "bailout" of FRE and FNM, when the liabilities were guaranteed, but there was no capital injection. Then as we all know, the entities were put into conservatorship (and were forced to issue senior preferred stock to US govt) in September 2008. This proposed "bailout" for Dexia doesn't address the obvious - someone (shareholders or taxpayers) will be forced to take the losses. Am I missing something? Or just making too much sense?
From what I've read over the weekend - it appears that Dexia will be nationalized: http://www.zerohedge.com/news/dexias-belgian-bank-be-100-nationalized In the absence of further detail, and reading between the lines, I assume that: * deposits will be guaranteed by French / Belgian governments * bondholders and other liability holders will possibly / probably receive the same guarantee * I believe that Dexia shares will start trading again on Monday. But I would assume that will only happen once a formal detailed announcement is made regarding the company's future, particularly in relation to the French / Belgian government's role in (1) providing equity capital and (2) managing the sale of individual business units * I am guessing that the French and/or Belgian governments will look to sell off individual businesses to the highest bidder(s). These governments will then be responsible for any additional capital injections required in order to make debt repayments as they fall due. * Belgium likely to lose AAA rating
Link to other ET thread about Dexia nationalization: http://www.elitetrader.com/vb/showthread.php?threadid=228545 Link to Reuters story: http://www.reuters.com/article/2011/10/09/us-dexia-idUSTRE7962XE20111009 "France, Belgium, Luxembourg agree Dexia rescue" snippet: Dexia's board was due to meet from 3 p.m. (1300 GMT) in Brussels. which according to my calculations was 9am New York time.
Bloomberg article: "Dexia Restructuring Backed by France, Belgium" http://www.bloomberg.com/news/2011-...-by-france-belgium-as-bank-s-board-meets.html earlier Bloomberg article: "Dexia Board Meets as France, Belgium Tussle Over Troubled Assets" http://www.bloomberg.com/news/2011-...akup-as-states-seek-to-salvage-the-parts.html
How can there be a nationalization of a multi-national bank? How much is Belgium going to contribute? What about France? I am doubtful this will stem the credit crisis. Anyway I doubt "rescuing" one bad bank is going to alleviate the problem anyway. So who is going to re-cap the other European Banks that are levered 50:1? I don't buy it. US Sub-prime == Euro PIIGS debt. There is no solution except deleveraging and deflation.
I agree that those three questions have not been answered. And it's disappointing that many journalists don't seem to be asking those questions. Agree. Maybe the failure of Dexia can make people get more nervous about the French and German banks. Deleveraging and deflation is the likely outcome. However, if there is credible bank recapitalisation then the losses can be taken fairly quickly. Particularly if the bank recapitalisation is done as a result of the ECB printing up a few hundred billion Euros.
You summed it up pretty well in your earlier post: Sadly your solution is probably the route that will be taken. I believe, however this was the route that Japan took. This will guarantee no growth for decades to come because all excess profits will go to further Bank re-caps. The future is looking ugly for the European and the West in general unless you are a commodity exporting country (Australia, Canada, etc.).
True, but the future isn't as rosy in October 2011 for Australia / Canada than it was in 2010. There are plenty of signs that China's rate of growth is slowing, such as the charts of copper or the $SSEC stockmarket index or the Hang Seng.
I think this one word commentary with picture sums things up quite nicely: http://ftalphaville.ft.com/blog/2011/10/10/697161/undexia-2/