Belgium, France Nationalize Dexia; Erste Bank $1 Billion Loss

Devan Biswas
10 Oct, 2011
New York City

European markets jumped on the hopes that Germany and France will follow through the promises to facilitate bank recapitalization plan. Slovakia is set to vote on the expansion of the European rescue fund. Erste Bank announced

[R]3:55 PM Frankfurt – European markets jumped on the hopes that Germany and France will follow through the promises to facilitate bank recapitalization plan. Slovakia is set to vote on the expansion of the European rescue fund this week. Erste Bank announced €800 million losses linked to Hungarian loans and declines in peripheral euro zone sovereign bonds.[/R]

European markets edged higher after leaders of Germany and France pledged to work together to expedite the bank recapitalization plan and accelerate fiscal integration of Europe by the next meeting of G 20 nations in Cannes on November 3-4.

Markets indexes edged higher in the early trading but gains were trimmed after Erste Group Bank estimated huge losses linked to Eastern European loans and Greek sovereign bonds.

The CAC 40 index added 1.1% to 3,130.91, the DAX index increased 1.5% to 5,758.78 and Swiss Market Index gained 0.7% to 5,690.75. The market indexes in Italy soared 2% and in Spain increased 0.4% and in Greece jumped 0.8%.

Belgium, France and Luxembourg agreed to work together that will see the failed bank Dexia SA nationalized. Dexia has a total of €700 billion loan portfolio and has suffered heavy losses linked to Greek and other peripheral euro zone nations’ debt.

Dexia agreed to a €90 billion state guarantee and sell its Belgium division to the government as a part of the rescue deal.

Dexia chairman Jean-Luc Dehaene, a former prime minister of Belgium will step down from the chairman of the Belgian operations and but will remain as a chairman of Dexia SA.

The euro rebounded 1.6% against the dollar and traded up to $1.359 from the low of $1.3145. The euro also gained against the Swiss franc and traded at a 4-month high of 1.236.

Investors are awaiting the results of Slovakia vote to approve the expansion of the European Financial Stability Facility. The rescue fund needs the approval of 17-member nations and Malta and Slovakia, the two remaining members, are scheduled to vote on the measure this week.

The Slovakian lawmakers are divided and the vote may fall short of the approval on Tuesday.

Greece said it has completed meetings with the EU and the IMF and inspectors are expected to wrap up their visits by tomorrow. Greece is expected to run out of funds by mid-November if the next tranche of €8 billion are not released.

Stock Movers

Erste Group Bank AG dropped 13% to €18.00 after the Austrian bank said it will post a loss of at least €800 million on the losses in loans to Hungary and Romania euro zone sovereign debt. The bank also cancelled the dividend for the year.

The bank marked down the sovereign debt of the peripheral euro zone and will delay repayment of the non-voting capital of €1 billion it received from the Austrian government.

The bank estimated €500 million losses at its Hungarian loans unit and marked down to the market value its bond holdings of Greece, Spain, Ireland and Portugal to €600 million.

Raiffeisen Bank also declined 8.2% to €20.42.

Societe Generale decreased 15 cents to €20.35, BNP Paribas dropped 11 cents to €31.66 and Deutsche Bank rose 7 cents to €26.79.

Deutsche Bank is planning to consolidate energy derivatives unit controlled by BHF Bank. Deutsche acquire the BHF Bank as a part of its acquisition of private bank Sal. Oppenheim in March last year and is looking to sell the bank.

France Telecom SA increased 0.3% to €12.81 and the telecom operator said it will go ahead with its plan to sell its Swiss operations.

Orange Switzerland with 1.6 million subscribers controls 17% of the markets share in the Swiss market following 20% share controlled by Sunrise and 60% by the national carrier Swisscom.

France Telecom anticipates the sale to bring at least 1.5 billion through the sale and has attracted interests from private equity players but financing the purchase has been a hurdle.

Scania AB declined 1.5% to SEK97.05 after the Swedish truck maker said it will lower its production in Europe on the lower demand. Volvo AB declined in the early trading as much as 2.7% but recovered to 1.7% increase to €7.90 and MAN SE dropped 2.2% to €55.78.