Dexia

Dexia is a Franco-Belgian financial services group created in 1996 through the combination of Belgium’s Crédit Communal de Belgique and France’s Crédit Local de France. Both predecessor institutions had strong connections to public-sector finance: Crédit Communal had been established in 1860 to finance Belgian municipalities, while Crédit Local was created in 1987 as a specialist lender to French local authorities. The combination created a cross-border banking group with expertise in lending to governments, municipalities and other public entities. During the late 1990s and early 2000s, Dexia expanded well beyond its original municipal-finance base. It acquired or invested in businesses involved in credit enhancement, retail banking, insurance, asset management, investor services and international public-sector lending. Important transactions included the acquisition of Financial Security Assurance in the United States, Artesia Banking Corporation in Belgium, a controlling interest in Italy’s Crediop, and DenizBank in Turkey. Dexia also formed RBC Dexia Investor Services, a 50/50 joint venture with Royal Bank of Canada. At its height, the group operated across numerous countries and was one of the world’s leading providers of financial services to the public sector. The group’s growth was accompanied by substantial exposure to long-term and structured assets, wholesale funding and financial-market counterparties. These vulnerabilities became acute during the 2008 financial crisis. In September 2008, funding markets became difficult for Dexia, partly because of concerns about the group’s US subsidiary FSA and its exposure to the troubled German lender Depfa. Belgium, France and Luxembourg provided a capital rescue and extensive state guarantees. Dexia subsequently sold the healthy part of FSA, reduced trading activities and adopted a restructuring plan designed to shrink the group and refocus it on core activities. The restructuring did not eliminate the group’s risks. Dexia remained exposed to sovereign debt, including Greek government bonds, and to a large legacy balance sheet funded in difficult market conditions. In 2011, losses and renewed funding pressure made Dexia the first major banking casualty associated with the European sovereign-debt crisis. The group entered an orderly resolution process in October 2011. Dexia Bank Belgium was acquired by the Belgian state and became Belfius in 2012. The French local-government lending business was separated and reorganized as SFIL, while other subsidiaries and businesses were sold. The residual Dexia entity remained as a so-called bad bank, tasked with managing down legacy assets and liabilities rather than pursuing broad commercial expansion. Subsequent disposals included the group’s interests in RBC Dexia Investor Services, Banque Internationale à Luxembourg, DenizBank, Dexia Municipal Agency, Dexia Asset Management and other operations. The remaining Dexia organization has therefore been defined less by new product development than by balance-sheet reduction, risk management, asset disposals and the orderly termination of legacy activities. Its historical brand remains closely associated with public and municipal finance, cross-border banking integration, government-supported resolution and the challenges of funding a large financial institution during systemic crises.

Dexia’s roots lie in two specialist public-finance institutions. Gemeentekrediet van België, also known in French as Crédit Communal de Belgique, was founded in 1860 to finance investment by Belgian local administrations. It later developed savings and retail-banking capabilities and expanded internationally, including through an investment in Banque Internationale à Luxembourg. In France, Crédit Local de France was established in 1987 as the successor to a public-sector equipment-finance institution. It was designed to serve local authorities as sophisticated economic and financial-market participants and began international expansion soon afterward. The two institutions combined in 1996 to form Dexia. The new group initially operated as a dual-listed cross-border company and expanded its public-finance franchise through acquisitions and minority investments. In 1997 and 1998 it increased its position in Crediop, an Italian specialist lender to local administrations. In 1999, the Belgian entity became the parent of the French banking operation, and Dexia obtained listings in Brussels and Paris. The group broadened into insurance and acquired Financial Security Assurance in 2000, giving it a major position in US municipal credit enhancement. In 2001 it acquired Artesia Banking Corporation, adding Belgian retail banking, insurance and asset-management activities. Dexia also expanded in Israel and Turkey, acquiring a controlling interest in DenizBank in 2006. A joint venture with Royal Bank of Canada created RBC Dexia Investor Services in the same period. The group’s broad international structure and reliance on financial markets became a major vulnerability during the global financial crisis. In September 2008, counterparties became unwilling to provide Dexia with sufficient short-term credit because of concerns about FSA, exposure to Depfa and other assets. The share price fell sharply, ratings were downgraded and the governments of Belgium, France and Luxembourg intervened. The rescue included a capital injection of approximately €6.4 billion and a state guarantee framework covering a very large volume of Dexia liabilities. The group then sold the healthy portion of FSA, reduced trading and proprietary-market activity, and began a multi-year program of disposals and staff reductions. Dexia remained exposed to long-duration assets and sovereign risk. In 2011, the deterioration of Greek government debt and the wider European sovereign-debt crisis generated severe losses. Although an earlier European stress-test assessment had reported a strong capital position under its published scenario, market confidence and funding access deteriorated rapidly. In October 2011, the group began an orderly resolution. Dexia Bank Belgium was separated from the group and acquired by the Belgian state; it was renamed Belfius in 2012. The French public-sector financing business was reorganized as SFIL, while the residual Dexia group retained legacy assets and liabilities in a controlled wind-down structure. The post-resolution period was characterized by asset sales and balance-sheet management. Dexia sold its interest in RBC Dexia Investor Services, Banque Internationale à Luxembourg and DenizBank in 2012, followed by Dexia Municipal Agency and other businesses. Dexia Asset Management was sold in 2014. The continuing entity no longer resembled the diversified financial conglomerate built during the group’s expansion phase. It became primarily a resolution and run-off organization, focused on reducing legacy exposures, meeting obligations, managing liquidity and completing the gradual winding down of its remaining activities.

• 2014

  Dexia Asset Management is sold

  [1]Dexiaen.wikipedia.org

  The disposal forms part of the continuing reduction of the former financial conglomerate.

• 2012

  Dexia Bank Belgium becomes Belfius

  [1]Dexiaen.wikipedia.org

  The Belgian state acquires the banking subsidiary, which continues under the Belfius name.

• 2011

  Dexia enters resolution

  [1]Dexiaen.wikipedia.org

  Sovereign-debt losses and funding stress lead to the separation of operating businesses and creation of a residual wind-down bank.

• 2008

  Dexia receives government support

  [1]Dexiaen.wikipedia.org

  Belgium, France and Luxembourg provide capital and guarantees after the group loses access to normal wholesale funding.

• 2006

  Dexia acquires control of DenizBank

  [1]Dexiaen.wikipedia.org

  The group expands its retail and commercial banking presence in Turkey.

• 2001

  Artesia Banking Corporation is acquired

  [1]Dexiaen.wikipedia.org

  Dexia adds Belgian retail banking, insurance and asset-management activities.

• 2000

  Financial Security Assurance is acquired

  [1]Dexiaen.wikipedia.org

  The acquisition strengthens Dexia’s position in US municipal credit enhancement and public-sector finance.

• 1999

  Dexia adopts a unified cross-border structure

  [1]Dexiaen.wikipedia.org

  The Belgian entity becomes the parent of the French operation and the group is listed in Brussels and Paris.

• 1996

  Dexia is formed

  [1]Dexiaen.wikipedia.org

  Crédit Communal de Belgique and Crédit Local de France combine to create the Dexia Group.

• 1987

  Crédit Local de France is created

  [1]Dexiaen.wikipedia.org

  France establishes a specialist institution for financing local authorities.

• 1860

  Crédit Communal de Belgique is founded

  [1]Dexiaen.wikipedia.org

  The Belgian predecessor is established to finance investments by local administrations.

Specialist financial-services provider for public authorities and institutional clients, later transformed into a wind-down institution managing legacy banking assets.

• Public finance · 1860

  Public-sector and municipal finance

  Dexia’s historic core was lending and other financial services for municipalities, local authorities, public institutions and infrastructure-related borrowers. The franchise developed from the original missions of Crédit Communal de Belgique and Crédit Local de France. It included long-term loans, funding structures and capital-markets services designed around public-sector investment needs. Following the 2011 resolution, much of the operating business was transferred to successor institutions, while the residual Dexia entity focused on managing legacy exposures rather than expanding this offering.

• Retail banking · 1947

  Retail banking

  Through Belgian and international subsidiaries, Dexia offered deposit accounts, lending and related retail financial products. Retail banking became more prominent in the group’s earnings during parts of the post-2008 restructuring, particularly through the Belgian and Turkish businesses. These operations were subsequently separated or sold, including the Belgian banking arm that became Belfius and DenizBank in Turkey.

• Credit enhancement · 2000

  Financial guarantee and credit enhancement

  The acquisition of Financial Security Assurance gave Dexia a major business in financial guarantees and credit enhancement, especially for US municipal and public-sector obligations. This activity supported Dexia’s ambition to become a global public-finance specialist, but FSA-related concerns also contributed to the group’s funding pressure during the 2008 crisis. The healthy part of FSA was sold at the end of 2008.

• Asset management · 2001

  Asset management

  Dexia operated asset-management businesses serving institutional and other investors. Asset management formed part of the group’s diversified financial-services model alongside banking, insurance and public finance. Dexia Asset Management was later sold as part of the post-crisis restructuring and reduction of non-core activities.

• Securities services · 2006

  Investor services

  RBC Dexia Investor Services was a joint venture between Dexia and Royal Bank of Canada providing custody, fund administration and related institutional investor services. Dexia confirmed the sale of its 50% interest in 2012, after which the business became wholly owned by RBC and was renamed RBC Investor Services.

• 2012

  Dispose of major international subsidiariesM&A

  Background

  The resolution plan required Dexia to shrink substantially and release capital from non-core businesses.

  Action taken

  Dexia sold its interest in RBC Dexia Investor Services, Banque Internationale à Luxembourg and DenizBank.

  Aftermath

  The disposals accelerated the transition from an international banking group to a legacy-asset management institution.

  Source

• 2011

  Separate the operating banks and create a residual wind-down structureM&A

  Background

  Losses on sovereign debt, including Greek government bonds, and renewed liquidity pressure made the diversified group unsustainable.

  Action taken

  The Belgian banking arm was sold to the Belgian state, French activities were reorganized around SFIL, and remaining legacy assets were retained in Dexia.

  Aftermath

  Dexia ceased to operate as a conventional diversified banking group and entered a gradual run-off process.

  Source

• 2009

  Concentrate on core activities and reduce market riskStrategy

  Background

  Dexia reported substantial losses and faced pressure to simplify its balance sheet and reduce dependence on volatile financial markets.

  Action taken

  The group announced disposals, reductions in trading activities and approximately 1,500 job cuts.

  Aftermath

  The plan reduced the scope of the group but did not prevent renewed funding and sovereign-debt problems in 2011.

  Source

• 2008

  Accept a government-backed rescue and begin restructuringStrategy

  Background

  The global financial crisis disrupted wholesale funding and raised concerns about Dexia’s exposures to FSA, Depfa and other financial assets.

  Action taken

  Belgium, France and Luxembourg provided capital and guarantees, while Dexia sold the healthy part of FSA, curtailed trading and began reducing its risk profile.

  Aftermath

  The intervention stabilized the group temporarily but left it subject to restructuring commitments and continued state oversight.

  Government capital support. Approximately €6.4 billion (2008)

  Source

1. 1Dexiaen.wikipedia.org
2. 2Dexia official websitedexia.com