France and Belgium promised to support stricken bank Dexia SA via guarantees for a "bad bank" holding its worst assets in a bid to prevent its troubles from deepening the eurozone debt crisis. Laid low in recent weeks by its heavy exposure to Greece and problems accessing wholesale funds, Dexia saw its shares drop as much as 38 percent to an all-time low on Tuesday as confidence in the group collapsed.
"We have to put all the dangerous parts outside of the bank. It is here where the state guarantee will come into play, it's what's called a 'bad bank'," Belgian Finance Minister Didier Reynders said after a joint Franco-Belgian government statement pledging support. Dexia shareholder France was working to break off Dexia's French local lending arm and combine it with French state bank Caisse des Depots and Banque Postale, a senator from French President Nicolas Sarkozy's centre-right party told Reuters.
Yves Leterme, the caretaker prime minister of fellow Dexia shareholder Belgium, summoned core cabinet members to an emergency evening meeting to discuss the bank's problems. Luxembourg, not a shareholder but home to one of Dexia's three main arms, said it would take an active role in the bank's restructuring. Finance Minister Luc Frieden said he did not expect final decisions on the bank's future on Tuesday, adding it was "not a panic situation".
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