Dexia Bailout On Verge Of Collapse, Threatens To Take France AAA Rating Down With It

Tyler Durden's picture

Having followed the fortunes of the beleaguered Belgian bank from before it appeared on anyone's worksheets, we are hardly surprised that the EU Commission charged with confirming the good-bank / bad-bank restructuring is concerned at the deal that Belgium has with the French (and Luxembourg) government to backstop/finance Dexia's debt. Belgium's De Standaard (and two other European newspapers) today suggests the Belgians fear the EUR90bn deal is 'not feasible' as it stands (with a Belgium 60.5%, France 36.5%, and Luxembourg 3% weighting). Given the change in market conditions the commission, according to the article, is concerned at the ability of each country to finance its respective guarantee (most obviously Belgium) and therefore can renegotiate the October bailout deal. Belgian FinMin Reynders would not confirm the renegotiations but was evidently waiting on the commission's 'comments or additions'. The French are obviously not-amused and of course, any increase in the size of France's guarantee will further impact its ability to maintain the much-vaunted AAA rating.




The initial bailout deal was profitably traded via our suggestion of DEX-Belgium compression and as the orange oval shows risk was very rapidly transferred from DEXCL (Dexia's CDS level compressed - green arrow) onto the balance sheet of Belgium (red arrow showing how Belgium CDS underperformed France CDS).

The last week or two has seen systemic concerns creep into all of the spreads involved  - though notably the spread between Belgium and France has been relatively stable around 110bps. Idiosyncratically DEXCL has decompressed notably as chatter about the deal's collapse grows louder.

We suspect that there will be some renegotation that pushes more pain to bondholders in return for France shouldering more of the burden and so a DEXCL decompression vs Belgium-France compression trade makes some sense (as a risk-transfer trade) but cost of carry is high. Perhaps the simplest way (and cheapest) is outright short France credit.

From De Standaard: Dexia Rescue Plan Is Not Feasible (Via Google Translate)

BRUSSELS - Belgium asks France to renegotiate the bailout Dexia Holding, also on the distribution of the state guarantee of 90 billion. The euro crisis plan unfeasible.From our editors coup de théâtre in the Dexia case. While President Jean-Luc Dehaene again yesterday for the special Dexia commission appeared to a clarification of the trap and the dismantling of Dexia shows an important part of the Belgian-French agreement of October 9 obsolete. In particular, the rescue plan that Belgium France and Luxembourg have agreed in early October for Dexia Holding (the rest couch, red), stands on the slope. And this includes the much-discussed state guarantee of 90 billion to finance the remaining banks - especially the more massive historical bond portfolio and the unsold subsidiaries of Dexia behind. Belgium dropped by France to convince the majority (60.5 percent) of the financing of the remaining bank Dexia is a Belgian guarantee to cover.


This guarantee, Dexia to enable the next year to 54 billion euros from the Belgian bond market to pick up. This would come in direct competition with Belgium itself, that money needs to get his debt and deficit financing. The Belgian bond market is quickly drying up. This makes it impossible for the coming years tens of billions of Dexia to retrieve. Specialists estimate that for Dexia 'only' room for 20 to 25 billion euros from the Market. Since the agreement Dexia Belgium mistrust of financial markets, allowing long-term rates has increased dramatically: the beginning of October is 3.6 percent in Belgium paid ten-year loan, now it is 4.9 percent. And that has consequences for the rest of the financing bank.


"Dexia becomes intolerable as it is such high interest rates on the market to pay, insiders warn. French resort Belgium, France and the European Commission has therefore already stated that the bailout Dexia Holding need re-negotiation. As a possible way a new agreement in which the French, backed by Belgium, one additional share of the funding to take on. Much time is not. For the euro crisis threatens not only Belgium in need of money to bring the whole bailout for Dexia falters. Dexia Holding should not only pay high long-term market, it needs also a costly fee for the state guarantee.


Total (financing) costs of the massive bond portfolio in the rest thereby threaten the bank proceeds to beat. Allowing the remaining banks are structurally unprofitable. All parties involved are treated with the hands in the hair. "What now?" The remaining bank fail let go is not an option, it reads. The consequences for Dexia Bank Belgium (DBB) could not be foreseen. "The Belgian state bank to the rest Dexia bank an overdraft - no guarantees, so - given 20 to 25 billion euros, and then that money completely lost."


The only solution that Belgium sees that France itself the majority of The money the rest of Dexia bank needs from the French bond market gets. Belgium would be the part that France collects on behalf of our country, with guarantees covering. But the French are not designed for jumping. They believe that Belgium commits perjury. Paris itself is under great pressure. The credit agency Moody's yesterday put pressure on France once again by openly to question the sustainability of the French AAA credit rating. In addition, in the spring French presidential elections. Dexia Belgium ruin.

It seems that Belgium is 'pulling a Greece' - knowing that it has all the leverage and France has much larger exposure to the problem - once again the unintended consequence of capitalism wiothout failure is writ large.


Chart: Bloomberg

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Temporalist's picture

When you own other people's shit, it doesn't stink any less.

surf0766's picture

quote of the day. thanks for the laugh

trav7777's picture

sounds like 15 million silverbugz about to get fleeced

TruthInSunshine's picture

Stay calm everyone, because The Bernanke & Gang are really Johnny On The Spot, having just issued their final rules on U.S. Bank stress tests today, and also reviewing capital requirements of said institutions.

I'm very glad that they're acting so urgently with the very real possibility that these banks may have uber exposure to Euro Zone liabilities, and given that EU counterparties of said banks may be on the cusp of hyper-implosion within hours/days/weeks.

Thanks for

Oh regional Indian's picture

That is the strangest correlation I've heard. Paper BUgs or Physical bugs?

Pretty interesting though. But Silver aside.... the plan is pretty obvious now. Hurt a bank. A big bank in trouble always puts a few smaller ones in a death spiral.

From there to a Greece/Italy style take-over is a few weeks work. France is definitly a FFFFpiG. But it's nto going down either. Not France, not Italy. Too big to Fail.

More important, WHY has Belgium not had a government for so long? What is it intended to be?



zhandax's picture

More important, WHY has Belgium not had a government for so long? What is it intended to be?

ORI, isn't it apparent?  The prettiest pig ever to have lipstick applied by a central banking cabal; or in more popular parlance, the Death Star, from which Dearth Blankfein will strip the remainder of the wealth from the far-reaching provinces to shower the local hookers with gifts.

Oh regional Indian's picture

Fascinating, eh Zhandax? Heart of the EU cannot have a government. It's a tell, for sure. 


dark pools of soros's picture

a puppet can not be the puppet master - Oz dines on mussels

QuietCorday's picture

My understanding was that the political situation in Belgium was down to a largely unreported schism between the Flemish (Dutch-speaking) and the Walloons (French-speaking), mostly down to significant cultural differences, the insane institutions created to support these differences in the different regions, and economies of Flanders and Wallonia moving at entirely different speeds -- and the fact that economically-successful Flanders does not like having to pay for struggling Wallonia, nor does it like its left-leaning policies that are funded on its dime.

Belgium will, most probably, undergo some sort of partition in the next few decades; they are a perfect example of how the concept of multi-culturalism simply does not work.

This is all rather interesting in light of the current EU fiasco. If Belgium, a founding member of the EU and the host to the HQ, cannot keep a simple dia-cultural geographical space functioning within one political entity, then how the hell is the EU ever going to manage Euro-federalism or any kind of transferunion?

Oh regional Indian's picture

Thanks Quiet and that surely is the reason the people have. Or have been given. But, given that it si the permenant home of the EU HQ, makes my Spsenses tingle. Wicked designs and all!


Archduke's picture

The Wallon / Flemish divide underwent an inversion with the rise of the Germand and Dutch economies.

Historically it was the aristocrats and bourgeois who spoke French; the farmers and workers spoke Flemish.


Much like ireland, the european institution is changing all that.  The powerhouse of Brussels (the city)

is now 10% expats, who bring in the lion's share of the wealth and are making local politics irrelevant.

though it is telling that expats are charged the most in taxes, up to an enormous 57%, which seems

like a clear violation of european directives of fairness and equality for all residents.


But that's Belgium for you.  Fairness has never been part of the equation.  In fact they actively created

artificial class and caste distinctions in The Congo and Rwanda in the colonial days.  It's a wee little

kingdom producing a smidgen of energy, steel, and exporting blood diamonds and small arms worldwide.

Oh, and it runs a small financial laundering and tax evasion scheme on the side ala luxemburg/liechtenstein.

Dexia for example was basically created to allow Belgian savings caisses and credits to speculate in the

eurozone big leagues.  It's thus up to the Belgian crown to nationalize and patch the problem if it blows up.


Like a lot of old europe, it's sitting on old wealth and does not produce or participate enough in the modern

economy and is thus due for a dowsizing or rather rightsizing.  I put Italy, Austria, Nederlands in that list too.

That's basically the essence of the european problem: class warfare, with old aristocrats hanging on to

the vestiges of accumulated but unproductive wealth, artifically skewing it against the productive areas.

To fix this there needs to be more integration, more migration, less protectionism, more restructuring.


I believe in the virtue of waste as health indicator, much like the fanciful plumage of the birds of paradise.

in geopolitical matters, this waste is manifest in maintaining a costly ostentatious military.  You can clearly

see that the credible european states are Great Britain and France.  Coupled with Germany (banned to do so)

as an economic powerhouse this comprises the core of europe.  everything else is due for a downsize.

Time to sell some looted art and heritage buildings and head back to more productive work.



joshua10's picture

As the wider equity market declines, PM prices will follow for while until the supply/demand metrics correct. I can only hope silver would decline so I can back my truck up to my dealer and load up! Silver supply is tightening and with countries like China subsidizing the gold and silver purchases to it's citizens as it prepares for the next leg down, it doesn't take a rocket scientist to figure out that any decline in PM prices will be very temporary.

vast-dom's picture

Good! Let the ZOMBIE BANK starve rather than throwing more QE-stylee-human-flesh chum at it!


You can't make a human out of a zombie, but zombies are exclusively made out of humans. It's called DENATURING or some such thing.


France at AA is generous.

jeff montanye's picture

  thanks for a great post.  p.s.  now that i think about it, that rating was much vaulted wasn't it?  too bad the signatures were in disappearing ink.

sitenine's picture

Pathetic, that every shoe has dropped, the writing is all over the wall (floor and ceiling too), and I can't hear my self think over the fat women singing, but central banks are still trying to 'keep it together'.

I can only think of 2 buy recommendations at the moment, PM (make god damn sure you take delivery!) and FAZ.

Please assume crash positions.

vast-dom's picture

FAZ is certainly the move.

OldPhart's picture

My most recent buy, today, was a Smith & Wesson .45 ACP, Model 1911.  It will be fondled as often as my silver.

fockewulf190's picture

You could get it silver plated and ask Max Keiser to engrave his signature on it.

Incubus's picture

atlas shrugged, but bernanke took over; atlas was too much of a bitch.  You think bernanke is at his limits?  He can prop up the solar system if he wanted to.  Now, who wants to bail out Uranus?

knukles's picture

(voice of Mr. Ed the Talking Horse)

Fr AA nce

Taffy Lewis's picture

Have you ever heard of a talking horse?

UP Forester's picture

He's talking his way right into the glue factory.

bank guy in Brussels's picture

Thanks for the reminder of the great Mister Ed! Hadn't recalled the famous song in a long time:

A horse is a horse, of course, of course,
And no one can talk to a horse of course
That is, of course, unless the horse is the famous Mister Ed

Go right to the source and ask the horse
He'll give you the answer that you'll endorse
He's always on a steady course
Talk to Mr Ed

People yakkity yak a streak and waste your time of day
But Mr Ed will never speak unless he has something to say
A horse is a horse, of course, of course
And this one'll talk till his voice is hoarse

You never heard of a talking horse?
Well listen to this:

"I am Mister Ed!"


Buck Johnson's picture

They finally figured out that when you owe a bank 100,000 euros it's your problem.  But if you owe a bank 100 million euros, it's the banks problem.

AldousHuxley's picture

when banks owe 100 billion euros to each other, then you have world economic crisis

Piranhanoia's picture

Shouldn't you multiply that by at least 100?  They repurchased crap that didn't exist for the last several years. 

pufferfish's picture

"They finally figured out that when you owe a bank 100,000 euros it's your problem.  But if you owe a bank 100 million euros, it's also your problem."

Just a little amendment there...

JungleJim's picture

And .... If a bank owes you anything it's your problem.

phungus_mungus's picture

Has anything the EU tried been even remotely sucessfull? 

Seems allt he plans get touted inth e press as the end of the financial crisis, only to come back to the headlines days and weeks later as they all come unspooled...

Who are they trying to fool? 


WonderDawg's picture

Everyone. Themselves, included.

ISEEIT's picture

Yep. And don't ya get it yet? This is a human failure. Label it as 'systemic' if you prefer but the fact is that this is precisely what has always, and WILL always happen when power is placed in the hands of to few.

The very concept of world government and specifically consolidation ( taxation) at our Federal level ought to be the turn off of the century. 

Stupid, misinformed, and ignorant 'illene' Loves to rally for more of this suicidal bullshit. Leftist bullshit leads to lower standards of living 'on a long enough timeline'.


Call it 'science', call it math, call it whatever you prefer. The FACT is that freedom FROM government benifits individual humans.

It's not rocket science.

It's truth.

joshua10's picture

Smartest thing I've read in a long time.

Racer's picture

Euro SOARS on anticipation of another hopium wedgie of cash


(yes that makes as much sense as the reality!)

Vlad's picture

I'm certainly glad our Dexia 11/04/11 RON paper reached maturity.

Vampyroteuthis infernalis's picture

You can only polish a turd so much. Someone will bite it another day.

Tommy5454's picture

Don't worry, Bove says our banks will be fine in the stress test. Sooooooo, sell everything? He's like Costanza, if every instinct he has is wrong, then the opposite must be right.


Whoa Dammit's picture

King Albert II  Go and tell your master that we have been charged by God with a sacred quest. If he will give us food and shelter for the night he can join us in our quest for the Holy Grail.
Taunting French Guard  Well I'll ask him, but I don't think he'll be very keen. Ah, he's already got one, you see!
King Albert II What?
Sir Gallahad  He says they've already got one!
King Albert II  Are you sure he's got one?
Taunting French Guard  Oh yes. It's very nice!

Monty Python & The Holy Grail (except the king was Arthur, not Belgium's Albert II)

Spastica Rex's picture

Monty Python +1

Holy Grail +1

Originality +1

Sorry, only +1 button.

UP Forester's picture

Q: What is your name?

A:  Sarkozy.


Q:  What is your quest?

A:  Sta-beel-i-tee of ze Euro and of ze bahnks.


Q:  What is your favorite color?

A:  Yellow.  No, blue, um.... GREEN!   AAAAaaaaahhhh!

unununium's picture

In other news, Van Rompuy dismissed these developments as "only a flesh wound."

Maximilien Robespierre's picture

Tahrir Square rages on:

For some reason, I think they're beyond worrying about pepper spray and I can't seem to locate the peoples library anywhere.


Spastica Rex's picture

I wonder if they're having a general assembly meeting tomorrow and what's on the agenda. 


I'll take Tahrir Square for 100$ please Alex to block. 

chump666's picture

Just need China to do their bullsh*t PMI fudge get a smallish rally so I can fix a index short.  Looks like this market is getting ready to have it's guts fall out.