The sale of Dexia Banque Internationale à Luxembourg (Dexia BIL) is in the hot seat in Brussels. On 3 April, the European Commission announced that it had opened an in-depth investigation to determine whether the disposal of the Luxembourg-based subsidiary of Dexia Group respected market conditions and did not entail any elements of state aid. The sale of 90% of Dexia BIL to the Qatari-based investment firm Precision Capital (owned by the royal family of Qatar) for €730 million, with the remaining 10% still held by Luxembourg, was notified, on 23 March. In the absence of “sufficient information on the value of the activities dissociated from the transaction at this stage,” what interests the EU executive is Dexia BIL’s retail and private banking business. “Since the proposed sale is the result of negotiations with a private investor and because the Commission does not have enough information at this stage on the value of the activity being sold,” it wishes to check with this in-depth investigation “whether the transaction price is compatible with market conditions”.

DISMANTLING

Dexia Group – which used to be organised around a parent holding company (Dexia SA) and three operational subsidiaries in Belgium (DBB), France (DCL) and Luxembourg (Dexia BIL) – was recapitalised in autumn 2008 in the amount of €6.4 billion and given a guarantee of up to €150 billion, provided 60.5% by Belgium, 36.5% by France and 3% by Luxembourg – in order to facilitate Dexia’s access to financing. The European Commission validated, in March 2009, a guarantee by the Belgian and French states on a portfolio of assets totalling US$16.9 billion to make possible the sale of the American subsidiary FSA.

However, this plan failed to bring about sufficient recovery and the bank decided, in October 2011, that it had no choice but to split its Belgian, French and Luxembourg activities and to create a ‘bad bank’ for its high-risk assets. In addition to the sale by Luxembourg’s authorities of Dexia BIL, Belgium notified to the Commission the acquisition of Dexia Banque Belgique (DBB, whose name has since been changed to Belfius) for €4 billion, while France is putting the finishing touches on setting up a joint venture between the Caisse des dépôts (CDC) and La Banque Postale (LBP) for a new business specialised in loans to municipalities. The structure for refinancing loans to municipalities will be 65% owned by CDC, 5% by Banque postale, and Dexia will keep 30%.

GUARANTEES

The three member states also agreed to give the bank another public guarantee of €90 billion, to be used in the amount of €25 billion to be able to borrow on markets, turn a profit and build up its equity.

But the burden-sharing effort for the guarantee is being called into question in Belgium, where the government intends to reduce its share. Finance Minister Steven Vanackere suggests that Italy, Spain and even Germany should participate in Dexia’s rescue because Dexia owns Crediop, which funds Italian municipalities, and Dexia Sabadell, its equivalent in Spain. Marie-Christine Marghem, who chaired the Belgian parliamentary committee that investigated the reasons for Dexia Group’s failure, and which adopted its report on 23 March, commented: “The guarantees are a black box and they should be renegotiated. But to do so, we need to wait until after the French presidential election and then renegotiate in a very sustained way with France and the European Commission”.

These guarantees are also indirectly implicated in another Commission investigation concerning the financial cooperative scheme, which includes ARCO, being liquidated following the dismantling of Dexia Group, in which it was a 14% shareholder.

Tough negotiations can be expected in the coming weeks.