France, Belgium meet to finalize Dexia break-up
BRUSSELS/PARIS (Reuters) - The French and Belgian prime ministers are set to finalize on Sunday the break-up of DEXIA (DX.PA)(DEXB.BR)as the bank's collapse added urgency to renewed talks among European leaders over how to counter the euro zone sovereign debt crisis.
The board of Dexia is due to meet in Brussels at 1300 GMT to seal the dismantling of the Franco-Belgian lender, which has global credit risk exposure of $700 billion, more than twice the size of Greece's gross domestic product.
Dexia, the first bank to fall victim to the euro zone sovereign debt crisis, was forced to seek government help this week after a liquidity crunch hobbled the lender and sent its shares into a tailspin.
Belgian caretaker Prime Minister Yves Leterme told a news conference on Saturday evening that final negotiations between France and Belgium would take place in Brussels on Sunday.
Leterme and his French counterpart Francois Fillon will both attend the final discussions, a government spokesman said, adding that a delegation from Luxembourg -- where Dexia had large operations -- would also take part in the meeting.
Dexia's near collapse stoked investors' anxieties about the strength of European banks and coincided with growing talk about coordinated EU action to recapitalize banks across the continent.
French President Nicolas Sarkozy was due to meet German Chancellor Angela Merkel on Sunday in Berlin to thrash out differences on how to use the euro zone's financial firepower to salve a sovereign debt crisis that threatens the global economy.
Germany and France have so far been split over how to recapitalize shaky European banks. Paris wants to tap the euro zone's 440 billion euro ($594 billion) European Financial Stability Facility (EFSF) to recapitalize French banks, while Berlin is insisting the fund should be used as a last resort.
Some investors view the response to Dexia's woes as a test of European governments' ability to take decisive action to rescue banks if the euro zone debt crisis worsens.
The burden of bailing out Dexia led ratings agency Moody's to warn Belgium late on Friday that its Aa1 government bond ratings may fall.
Dexia, which needs short-term funding to finance long-term lendings, has found credit drying up as the euro zone debt crisis worsened, and this situation has been exacerbated by the bank's heavy exposure to Greece.
Dexia's overhaul will see its French municipal financing arm split from the group and merged with French state bank Caisse des Depots and Banque Postale, the French post office's banking arm.
The Belgian government wants to nationalize Dexia's largely retail banking business in Belgium.
Healthy units, such as Denizbank in Turkey, will be sold.
A 'bad bank' supported by state guarantees will hold 95 billion euros in bonds, including 12 billion euros of sovereign debt of weaker euro zone periphery nations.
Including 7 billion euros of securities linked to U.S. mortgages, France and Belgium may need to provide guarantees to cover up to 200 billion euros of assets, which would be more than 55 percent of Belgian GDP.
The key issues for Sunday's talks will be how to divide up the 'bad bank' assets, how much Belgium should pay to nationalize Dexia's Belgian banking business and whether others, such as Belgium's regions, would be involved in its purchase.
Dexia's shares have been suspended since Thursday afternoon and have lost 42 percent since last Friday. ($1 = 0.741 Euros)
(Writing by Marie Maitre; Editing by Hans-Juergen Peters)