Back in 2006 and 2008, Franco-Belgian bank Dexia loaned €1.5 billion to its two largest institutional shareholders which used the money to buy Dexia shares, the Financial Times reported. Specifically, a subsidiary of Dexia loaned Holding Communal €1.2 billion and Arco, which invests on behalf of a Belgian trade union, €275 million.
Moreover, FT reports, Dexia accepted its own shares as collateral for the loans, which would have been devastating to the bank if share prices plummeted.
Holding Communal’s CEO said only 60% of its loan went towards buying Dexia’s shares. Holding Communal and Arco together own 35% of Dexia’s shares and continue to be represented on its board.
This type of artificial increase capital is now banned in the European Union, but didn’t break Belgium’s laws at the time.
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