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Embattled Dexia bank in line to be bailed out Embattled Dexia bank will get a massive bailout
(about 4 hours later)
France, Belgium and Luxembourg have approved a plan to secure the future of the troubled bank Dexia, following fears it could go bankrupt. France, Belgium and Luxembourg are to bail out the troubled bank Dexia, following fears it could go bankrupt.
Details were not released, but reports said the bank will be broken up and partly nationalised. The Belgian government will buy the bank's division in Belgium for $5.4bn (£3.4bn).
The largely retail operations has 6,000 staff and deposits totalling $107bn for 4m customers.
The plan came after French and German leaders agreed that Europe's crisis-hit banks need to be recapitalised.The plan came after French and German leaders agreed that Europe's crisis-hit banks need to be recapitalised.
Dexia would be left with $121bn in assets, some of which are described as "toxic". They would be covered by state-backed guarantees: 60.5% from Belgium, 36.5% from France and 3% from Luxembourg.
Belgian Prime Minister Yves Leterme told a news conference in the early hours of Monday: "We found an agreement on the fair division of the costs related to the management of the 'rest bank'."
Dexia asked for help for the second time in three years after a liquidity squeeze sent its shares tumbling.Dexia asked for help for the second time in three years after a liquidity squeeze sent its shares tumbling.
The situation with Dexia is the latest warning sign over the health of Europe's lenders. It has a global credit risk exposure of around $700bn (£449.5bn), twice the gross domestic product of Greece. The situation with Dexia is the latest warning sign over the health of Europe's lenders. It has a global credit risk exposure of around $700bn, twice the gross domestic product of Greece.
It is thought the plan will lead to the bank's Belgian retail unit and its French municipal finance operations coming under state control. Under the plan, Dexia's French municipal finance operations will come under state control. The bank is also expected to announce the planned sale of its healthy businesses, such as Denizbank in Turkey.
Belgium's Prime Minister, Yves Leterme, said: "The three governments have agreed to put a proposal to the board which fits completely with the goals of the Belgian government, which means to take over Dexia Bank Belgium, secure it and turn it into a very safe bank."
The burden of bailing out Dexia led to a warning from the ratings agency Moody's that it could cut its rating on Belgium's government bonds.The burden of bailing out Dexia led to a warning from the ratings agency Moody's that it could cut its rating on Belgium's government bonds.