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Wednesday 03rd of December 2008
September 30, 2008

Belgian bank Dexia is latest to be rescued by Government


by Kay Murchie
”Belgian

Yesterday saw Belgian-Dutch financial group, Fortis, rescued after the Governments of Belgium, Luxembourg and the Netherlands invested a total €11.2 billion (£8.9 billion) in the respective Fortis bank institutions in each country. Each Government will take a 49% stake in Fortis.

It has emerged today that Fortis’ rival, Dexia, has become the latest European bank to be bailed out. Its shares plummeted yesterday after reports it was seeking extra funding.

After discussions through the night, the Belgian, French and Luxembourg Governments have agreed to invest in €6.4 billion (£5 billion) to keep it afloat.

The Belgian and French Governments will invest €3 billion each while Luxembourg will invest just under €400 million.

The French Government said the rescue was essential as Dexia is the one of the world’s biggest lenders to local Governments.

Dexia has been hit by the collapse of US investment bank Lehman Brothers and last month it announced it was overhauling its loss-making US bond insurance unit, Financial Security Assistance, after it made a loss of $330 million in the second quarter of 2008 due to the sub-prime mortgage market crisis.

Dexia was created from the merger of two banks which specialised in local government funding in Europe in 1996.

The news follows the announcement that the US $700 billion (£380 billion) bailout scheme was rejected after it failed to gain support from Congress who voted against the proposed scheme.

Shares throughout Europe have fallen following the news and it has emerged that the Bank of England’s Governor, Mervyn King, has met with Prime Minister Gordon Brown, and Chancellor Alistair Darling for a breakfast meeting today as the financial system is on the verge of meltdown.

It is understood that the prospect of a stability package is being discussed with an announcement due later today.

Meanwhile, as panic spreads across Europe, French President Sarkozy is calling for a European Union response to the turmoil. He has called in the chiefs of France’s main banks and insurance companies to discuss the ongoing crisis.

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