BRUSSELS — The collapse of Dexia Bank has been rationalized by European and bank officials as a last act of the 2008 financial crisis, a slow-bleeding casualty whose complicated structure and investment portfolio couldn’t be rearranged effectively enough to survive when new problems hit.
To that extent, they say, it holds few lessons for Europe’s banking system as a whole.
Street protests against new Greek austerity measures turned violent Wednesday as protesters pelted police with paint and chunks of stone. Dozens of officers were hurt and more rioters were detained. (Oct. 19)
Oct. 19 (Bloomberg) -- Christopher Wheeler, an analyst at Mediobanca, discusses proposed asset sales at European banks and whether recapitalization will help to alleviate the euro-zone crisis.
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But as officials meet this weekend to take yet another stab at fixing the euro region’s financial crisis, the Dexia meltdown looms. While some of its problems were unique, others are common to the European banking system, potentially making Dexia the canary in the coal mine of a crisis to come.
From exposure to weakened government bonds to half-finished restructuring plans and a reliance on international funding that can quickly disappear, Dexia is not alone.
“There is a reasonable likelihood that it could start unwinding, and once that starts it could all go in a blur,” Sony Kapoor, managing director of the European think tank Re-Define, said of a banking system that has had increasing trouble raising the money it needs to operate.
European leaders meeting this week will be trying to rebuild confidence in the euro region as a whole. Measures aimed at insulating banks from losses on their holdings of Greek and other government bonds — and promoting lending to businesses and households — will be central to the debate.
They have imposed a Sunday deadline for decisions, but key disagreements remain. French President Nicolas Sarkozy made an unexpected trip to Frankfurt on Wednesday to meet with German Chancellor Angela Merkel about their differences over how to increase the financial power of a new European bailout fund.
They agree that its effective size needs to be increased from the existing $600 billion. But Germany is concerned that some of the more open-ended proposals would ultimately damage its budget as the chief financier of the fund, while also taking pressure off countries such as Greece and Italy to tighten their spending.
The rare beneficiary of a double-bailout, Dexia was given billions in public help in 2008 to restructure and reinvigorate itself. Jointly based in Belgium and France, Dexia is particularly prominent in Brussels, with logos blaring over the city’s subdued skyline.
Strike 2
The bank received another round of public help earlier this month under a plan that would split it into several pieces, including a “bad bank” housing troubled assets and a Belgian unit local officials hope will be smaller but profitable. Because of Dexia’s outsized role in the Belgian economy, the local company was nationalized with the intent of privatizing it in the future, the company said in a news release.
Bank officials declined to be interviewed for the record.
European officials insist that the company’s problems were unique. Dexia had a disproportionate share of money tied up in long-term loans to cities, national governments and other public entities. Those assets were hard to sell and hard to use as collateral for other loans, crimping Dexia’s ability to restructure and borrow the money needed to fund its operations.
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