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Deja vu for Europe's banks

Deja vu for Europe's banks
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As happened in 2008 a frisson of fear is passing through Europe’s lending community that some may not be able to survive the latest crisis.

Top of the list is Belgian-French bank Dexia which specialises in loans to local government. Its shares have been in free-fall on fears a Greek default could cause it to fail.

The Belgian and French finance ministers held emergency talks and then pledged support for the stricken bank.

The rescue plan looks likely to involve a break-up of the bank, with the sale of healthier operations, such as its Belgian and Turkish banking businesses, as well as the creation of a state-supported bad bank.

“We have to put all the dangerous parts outside of the bank. It is here where the state guarantee will come into play, it’s what’s called a ‘bad bank’,” Belgian Finance Minister Didier Reynders said.

France’s François Baroin added: “A lack of access to liquidity has again been creating more tension, as it did in 2008: that’s what I’ve been talking about with my Belgian counterpart. The Belgian and French states will step up to the plate – we’ll be there in particular to guarantee customers deposits in Belgium, and the French government – will be there to support the considerable loans that Dexia makes to local government in France.”

Luxembourg, not a shareholder but home to one of Dexia’s three main arms, said it would take an active role in the bank’s restructuring.

Dexia has high exposure to Greece, being owed 3.8 billion euros by Athens. Above it are France’s BNP Paribas which has lent five billion euros and Societe Generale with 4.2 billion euros of loans; Germany’s Deutsche Bank holds three billion euros worth of Greek government bonds.

The difference is that those other banks have deeper pockets and would not be so badly effected by a Greek default.

However BNP Paribas and Societe Generale are under pressure from EU regulators to anticipate bigger losses on their holdings of Greek government debt and accept they probably – at best – will only get back about half the money they have lent to Athens.