France and Belgium thrashed out plans on Saturday to break up stricken bank Dexia and divide its "bad bank" assets to preserve the financing of hundreds of towns in both countries and avoid a deepening of the euro zone debt crisis. Dexia, whose board is likely to meet on Sunday, was forced to seek government help earlier this week after a liquidity crunch hobbled the lender and sent its shares into a tailspin.
The Franco-Belgian bank's near collapse has added to investors' worries about the solidity of European banks and has coincided with increased European Union talk about co-ordinated action to recapitalise banks across the continent. The burden of bailing out Dexia also led ratings agency Moody's to warn Belgium late on Friday that its Aa1 government bond ratings could fall.
France and Belgium have guaranteed Dexia's financing, paving the way for a new rescue for the bank, which is struggling to wind down billions of euros in toxic assets accumulated during an overambitious expansion plan. But there were signs that the details of the rescue were proving troublesome, as a Dexia board meeting originally scheduled for Saturday slipped back to Sunday. Still, a source close to the talks was confident the bank's future would be determined before the opening of markets on Monday morning. "Dexia's funeral will be announced on Sunday," the source said, asking not to be identified.