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Dexia dragged down by Greek debt worries

Dexia dragged down by Greek debt worries
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The French and Belgian government will do the right thing to support bank Dexia in the current turbulent markets. So said the Belgian Finance Minister Didier Reynders.

Dexia is under pressure because of its exposure to debt-laden Greece.

The lender’s shares slumped 10 percent on Monday after credit agency Moody’s voiced concerns about its access to funds.

It is now looking more likely that Dexia’s state shareholders will have to consider a second bailout of taxpayers’ money.

Dexia is not the only European bank facing a need for capital as regulations become tougher, profits sag and lenders face losses on sovereign bonds if the euro zone crisis isn’t resolved.

Banks face a 148 billion euro capital shortfall under a base case and a 227 billion shortfall under a stressed scenario, according to analysts at JPMorgan, who say Unicredit , Deutsche Bank, Lloyds, Societe Generale and Barclays each face a deficit of over seven billion euros under its stressed scenario.

Dexia, which received a six billion euro bailout from Belgium, France and other major shareholders at the height of the financial crisis in 2008, held 3.8 billion euros of Greek sovereign bonds at the end of June and had a credit risk exposure to the country of 4.8 billion euros.

Dexia’s market capitalisation is only 2.5 billion euros, and its core capital is seen as insufficient to absorb big hits.

The company has taken a 338 million euro hit to cover a 21 percent loss on Greek sovereign debt maturing by 2020, part of a plan agreed by private sector investors in July.

But with market prices indicating investors could suffer a loss of 50 percent or more, Dexia’s Greek bill could be more than one billion euros more.