French-Belgian Bank's Shares Sink on Downgrade Threat

Moody’s ratings agency on Monday put Franco-Belgian financial group Dexia’s three main businesses under review for a downgrade, prompting a sharp drop in the group’s shares and further speculation that the bank may see more government aid after a first bailout in 2008.

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Moody’s cited concerns about “a further deterioration in the liquidity position of the group in light of the worsening funding conditions in the wider market” as the main reason for the review.

French banks have come under intense scrutiny of late, as they are considered especially exposed to Greek debt.

With fears growing that Greece will fail to meet conditions for a new tranche of aid, markets in Europe and elsewhere are increasingly turbulent.

Dexia's principal business units are Dexia Bank Belgium, Dexia Crédit Local in France and Dexia Banque Internationale in Luxembourg.

Dexia was not immediately available for comment.

Moody's downgraded French banks Societe Generale and Credit Agricole's long-term ratings in September.

Societe generale CEO Frederic Oudéa denied rumors about the bank's solvency on CNBC at the time.

Dexia was one of the first European banks to be bailed out in 2008 when the interbank lending market it relied on for funding dried up. Its 6.4 billion euro ($8.5 billion) rescue immediately followed the bailout of another Belgian bank, Fortis, which was part-nationalized and carved up. The crisis later led to the collapse of the Belgian government.

Belgian Finance Minister Didier Reynders will meet his French counterpart Francois Baroin on the sidelines of Monday’s meeting of euro group finance ministers in Luxembourg, Belgian media reported.

European stocks were lower on Monday. Insurers and banks were the biggest decliners, and Dexia fell more than 10 percent at the open, although it later recovered some of that lost ground. Click here for the latest Dexia stock quotes from Euronext Brussels.

Moody's said in July that it continued to have concerns about the group's "sizeable reliance on short-term funding" and the consequent "liquidity gaps that render it vulnerable to adverse market conditions and to a deterioration in the market perception of the creditworthiness of Dexia."

In the view of Moody's, Dexia has experienced further difficulty in its access to market funding - even to short-term unsecured funding - since July.

Chairman Jean-Luc Dehaene, a former Belgian prime minister, said in a statement last week that the group would examine “various strategic hypotheses with the aim of strengthening the financial fundamentals of the Dexia Group.” He denied however, that the group, was considering splitting itself up.

“Contrary to certain rumors, the Board of Directors and Dexia shareholders, both public and private, exclude any scenario involving a demerger of the Group,” the statement said.