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Belgium warns France it won't foot full Dexia bill

The logo of Belgian-French financial services group Dexia is seen at the bank headquarters in central Brussels October 5, 2011.


Belgium warned France on Thursday that it was not willing to foot the whole bill for rescuing Dexia as the two states started talks to divide up the Franco-Belgian lender's assets.

Dexia confirmed its board would meet in Paris on Saturday to vote on a break-up plan after Belgium and France pledged to guarantee its financing in the face of a dramatic share-price slide.

Belgian caretaker Prime Minister Yves Leterme told RTL radio that Belgium wanted a fair sharing of the burden.

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"It is clear that this is a very sensitive and crucial part of the negotiations – an equitable split of the costs," said Mr. Leterme, when asked what Belgium wanted from France.

The French finance ministry did not immediately reply to requests for a reaction.

Mr. Leterme's comments were echoed by Belgian Finance Minister Didier Reynders, who said Belgium did not want the full cost burden of saving, and possibly nationalizing, Dexia's Belgian banking arm as well as supporting a "bad bank" of assets left over from Dexia Group's past business.

"We do not wish to end up holding the whole of Dexia Group," he told reporters as he arrived for a meeting of core members of Belgium's government.

"We need a solution that means we are not just financing the Belgian bank. We also need to finance the past. And we do not want to do that alone."

Belgium is probably mindful of the rescue of Dutch-Belgian bank Fortis three years ago when, within a week of a capital injection, the Dutch abruptly nationalized its part of the bank, leaving Belgium to clear up the remaining mess.

Belgium provided 60 per cent of the €150-billion ($200-billion U.S.) of state guarantees Dexia secured in 2008 to cover its borrowing.

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However, sources close to the negotiations between France and Belgium said the two might settle for a 50/50 split to cover the bad bank assets, as this might be the maximum Belgium could afford.

The French finance ministry was not immediately available for comment.

France and Belgium are expected to finalize the rescue plan on Thursday or Friday so the board can proceed to a vote.

The bank, which lends to thousands of French and Belgian towns, needs help because of its problems accessing wholesale funds, exacerbated by its exposure to Greece.

A source familiar with the situation said Dexia's board might have to choose between a French and a Belgian option if the two sides cannot agree.

Under the rescue, France is leaning towards splitting off Dexia's French municipal funding arm and combining it with French state bank Caisse des Depots and the banking arm of France's post office, Banque Postale.

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Belgium would take care of the largely retail business Dexia Bank Belgium, possibly nationalizing it. Belgian business daily De Tijd said that was the route the government had chosen.

A government spokesman declined to comment, but did say French and Belgian financial experts had begun talks, with finance ministers to enter discussions later.

Dexia Group units in Turkey and Luxembourg are to be sold. Luxembourg Finance Minister Luc Frieden said an investor had been found to buy Dexia Banque Internationale a Luxembourg, with the Luxembourg state set to take a minority stake.

The bad bank would hold €95-billion of bonds the group was planning to sell, including some sovereign debt of weaker euro zone periphery states, around €7-billion of assets backed by U.S. mortgages, open credit lines and Dexia's public lending arms in Italy and Spain.

However, not everyone is happy with the plans.

Trade union members of French post office La Poste said they opposed combining Banque Postale and CDC with part of Dexia.

"Dexia is a caricature of the kind of damage wreaked by the race towards ever-greater financial profits by any means necessary, including foul ones such as the issuance of 'toxic loans' to local authorities," union CGT said in a statement.

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