(Non) News Of Dexia "Bad Bank" Sends Market Soaring

Tyler Durden's picture

If anyone had any doubt this market is broken beyond compare and controlled by complete idiots, this should put all doubts to rest. Anyone wondering why stocks are soaring, the reason is that according to non-news, because this was first reported yesterday by the FT, Dexia will park €180 billion in worthless assets in a bad bank. This is beyond ridiculous as Belgium, even in JV with France, will be unable to ringfence and hence fund this amount of capital for the now nationalized bank. It also means that Belgium is about to be downgraded following a long-overdue warning by S&P and Moodys to cut the country. It also means that Belgian CDS will soon trade points up front. It also means that Belgian funding costs will soar. It also means that French CDS will explode tomorrow and that interbank markets in Europe will collapse (even more) once the market realizes that France has just diluted its "bailout dry capital" by rescuing a Belgian bank. And so on. And so on. But for now the ripfest is here. Fade every uptick as this is sheer desperation out of Belgium which pretends it is Switzerland and can do with Dexia what the Swiss did with UBS. Hint: it is not and no, it can't.

From the WSJ Market Beat blog:

  • Franco-Belgian lender Dexia is set to park assets worth in excess of EUR180 billion into a so-called bad bank, a vehicle backed by guarantees from the French and Belgian governments, in an effort to disentangle itself from gripping liquidity strains, people familiar with the matter said Tuesday.
  • The bad-bank plan is part of a deeper makeover under which Dexia is considering selling all its core units and which may effectively lead to a dismantling of the lender.
  • Under a plan submitted to Dexia’s board on Monday, the bank would ring fence into a special vehicle all the assets it inherited from an aggressive expansion push early in the past decade as well as units that can’t be sold under current market conditions, the people familiar with the matter said.
  • These assets would include a portfolio of bonds worth EUR95 billion and about EUR30 billion in loans deemed non-strategic, they said. Dexia Crediop and Dexia Sabadell, the bank’s municipal lending units in Italy and Spain, respectively, would also be folded into the bad bank, the people familiar with the matter said. The European sovereign debt crisis has cast a cloud on most financial assets in Southern European countries, making it virtually impossible for Dexia to find buyers for the two units.
  • Over the past year, Dexia had succeeded in reducing short-term financing needs stemming from its large portfolio of long-term bonds. Yet, in recent weeks, the bank was increasingly struggling to raise funding at affordable costs. With little hope that liquidity strains would ease in the short term, management came to conclusion that Dexia could no longer carry the oversized bond portfolio alone, one person familiar with the matter said.
  • In a first step, Dexia may continue to carry the bad-bank vehicle on its books, but France and Belgium will give its guarantee to securities the bank must issue to meet refinancing needs, the people familiar with the matter said. Longer term, Dexia may transfer bad bank ownership to France and Belgium, these people said