Dexia Takes Extra US Mortgage Hit in 2008

Belgian-French financial services group Dexia reported a heavier-than-expected net loss on Thursday after it took an additional writeoff due to a deteriorating U.S. housing market.

The group, the world's largest municipal lender, said that its net loss for 2008 totaled 3.33 billion euros ($4.24 billion), compared with the 3.0 billion it had forecast at the end of January.

Dexia said it had taken an extra 300 million euros impairment on its U.S. residential mortgage-backed security portfolio.

The company calculated the negative impact of the financial crisis as 5.87 billion euros, including 3.14 billion euros from its U.S. bond insurance subsidiary Financial Security Assurance (FSA), whose insurance activities it has agreed to sell.

Chief Executive Pierre Mariani, who took the helm in early October, said the results demonstrated both the exceptional magnitude of the crisis and Dexia's "structural fragility."

"They reflect the cost of risky developments backed by inappropriate funding and concentrated far from core markets," he said in a statement.

Bank Degroof analyst Ivan Lathouders noted that the results were only preliminary and said that a 7 percent decline in fourth-quarter revenue excluding crisis impact at Dexia's retail division, personal financial services, was not encouraging.

Comparable revenue rose 16 percent at public and wholesale banking, but Lathouders said this was partly due to the long-term nature of much of the business.

Mariani said Dexia believed there would be an unprecedented macroeconomic slowdown in 2009 with disrupted equity and credit markets.

"Dexia aims at significantly improving its risk profile with the implementation of its transformation plan, in particular with the current sale of FSA," he said.

Dexia has said it plans to cut costs by 15 percent, or some 600 million euros, in the next three years, 200 million euros of that this year.

This will result it in axing 900 staff this year and not paying a dividend this year. It had around 35,000 employees at the end of 2007.

The group aims to refocus its public banking in Belgium, Luxembourg, France, Italy and Iberia and discontinue it in locations elsewhere such as Australia, India and Mexico.

It has already agreed to sell the insurance activities of FSA to U.S. peer Assured Guarantee and said on Thursday it still expected to close the deal early in the second quarter.

Dexia received a 6.4 billion euro bailout from France, Belgium, Luxembourg and key shareholders in September and later won state guarantees of up to 150 billion euros for its new borrowing, of which it has already used over half.

The guarantees ensured liquidity for the group and its survival as a lender to the public sector, but came with a cost, making its financing more expensive.

Shares in Dexia, which hit a record low of 1.5310 euros on Tuesday, have fallen by 90 percent in the past 12 months and 46 percent this year, compared with 70 and 27 percent drops of the DJ Stoxx European banks index respectively.

Dexia shares were down 3.5 percent in early trade on Thursday.

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