Restructuring, loans to Greece cost Dexia €6 billion

(AP) Dexia, the Franco-Belgian lender that had to be bailed out last month, said Wednesday the firesale of its Belgian retail business and losses on Greek government bonds cost it almost €6.32 billion in the third quarter.

In a sign of the uncertainty over the situation in Greece and whether the country will actually implement a bailout deal reached with the eurozone and private investors late last month, Dexia decided to take a larger loss on its Greek bond holdings than the one negotiated in the October 27 deal.

Dexia SA in October became the first major European bank to need a bailout in 2011 as concerns over the sovereign debt crisis escalated and other banks became increasingly skittish about lending it money.

In addition to getting €4 billion from the Belgian state for Dexia Bank Belgium, Dexia was also promised some €90 billion in guarantees for its debts from Belgium, France and Luxembourg. The business arm dedicated to lending to French municipalities, meanwhile, was taken over by French banks Caisse des Depots and La Banque Postale.

Dexia, which is more reliant on short-term financing than many other banks, already had to be rescued to the tune of €6 billion in 2008, when it was hit hard by the credit freeze following the collapse of U.S. investment bank Lehman Brothers.

In the years leading up to the 2008 crisis, Dexia became one of the world's biggest lenders to municipalities around the world, including the United States.

Dexia did not provide an overall net loss figure for the third quarter since it's in the middle of being split up. However, Chief Executive Officer Pierre Mariani said that Dexia was likely to record a net loss of more than €10.5 billion for the first nine months of the year, since the bank already lost more than €4 billion in the second quarter.

The biggest hit for Dexia, was the nationalisation of Dexia Bank Belgium by the Belgian government, which took place on October 9 but was accounted for in the bank's third quarter results.

The firesale of the Belgian unit cost Dexia €4.07 billion, after the €4 billion payment it received for the unit went mostly to repaying loans to Dexia Bank Belgium.

Dexia also took a loss of €2.32 billion on Greek government bonds and related hedges, citing the uncertainty surrounding the political situation in Athens.

Instead of writing down 50 percent of the face value of the Greek bonds it holds — as was negotiated under a deal with Greece and its eurozone creditors — Dexia decided to take a 55 percent loss on those holdings. However, a hard default by Greece would likely lead to losses above 55 percent.

Mariani said Dexia also took writedowns on bonds issued by the city of Athens and the Greek rail company.

A small profit of €135 million on the sale of Turkish insurance business DenizEmeklilik failed to offset the large losses.

The bank also detailed its €13.61 billion exposure to other struggling European countries, led by a massive €10 billion exposure to Italy, and €1.84 billion in lending to Portugal.

Dexia is in talks to sell several other businesses, including Turkish subsidiary DenizBank and Dexia Bank International Luxembourg, which could still cushion some of the losses.