Why You Need To Pay Attention To Dexia


Photo: Wikimedia Commons

Today there were headlines to the effect that Belgian bank Dexia had agreed to roll over its Greek bank debt.This name Dexia  is probably familiar to you, as it’s come up several times during the crisis.

A Belgian reader explains to us why it’s a must follow.


A lot of talk about Dexia today.

A very respected Belgian economist (Geert Noels, former Chief Economist for Petercam, now Chief Economist for Econopolis. He warned about the US housing/credit crisis) put a nice article on his blog : http://econoshock.be titled “2011 feels like 2008”.

He talks about Dexia’s vulnerability in case of a Greece  default.

He cites a UBS study which says: “according to UBS research, the top eight banks exposed to Greek sovereign debt directly are Greek or Cypriot (by the way, that means goodbye Cyprus in any default, a theme not heavily dwelt upon in the past few days). But who is number nine? Step forward that perennial star of the crisis, Dexia. According to UBS research, the 3.5bn Dexia is exposed to constitutes 39% of its capital. So in a default, probably, it is goodbye Dexia.”

The thing about Dexia is that it’s not just like any other Belgian bank.

Dexia was formerly known as “Gemeentekrediet” which translates as “City Credit”. It was (and still is) a bank which had very close connections with the government and the cities. After Lehman, Dexia got hit hard (via its US subsidiary Financial Security Assurance) and needed extra capital.

Our federal government added capital, but so did the Belgian cities via “Gemeentelijke Holding” (Communal Holding, which groups all the cities).

In 2008 Dexia survived thanks to our federal government + “Gemeentelijke Holding”.

Today, our federal government is on a tight budget and the “Gemeentelijke Holding” is in a dire state (for the first time since its inception, it didn’t pay out a dividend in 2011, which really is an ice-cold shower for the cities which are in need of money).

What Mr. Noels (and the UBS-study) show is that if Greece defaults, Dexia will be hit with a 3.5bn write-down which will erase no less than 39% of its capital.

If this happens, if Dexia gets hit: this will have consequences not only for Dexia, but for the entire eco-system around Dexia (federal government, local cities, unions, etc.)

Belgium is a great country: we have a broad middle class, excellent medicare and superb school-system, but, our country is way too exposed to the banking system. I mean, our banking system is too big in relation to our GDP (same goes for Luxembourg as it did for Iceland).

Greece will go down in flames, that’s for sure, you can ask a lot from your people, but not the draconion measures which will be imposed on them. They will revolt. If that happens, sh*t will hit the fan here in Belgium.

My biggest worry is not the fact that we still don’t have a government, that we will survive, but a Dexia-collapse would have truly devastating consequences as it is so closely interconnected with this country.

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