EU Commission approves Dexia bailout plan

BRUSSELS Fri Dec 28, 2012 11:44am GMT

The Dexia tower is seen in La Defense, near Paris, November 8, 2012. REUTERS/John Schults

The Dexia tower is seen in La Defense, near Paris, November 8, 2012.

Credit: Reuters/John Schults

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BRUSSELS (Reuters) - EU regulators gave approval on Friday to a bailout of bank Dexia (DEXI.BR), including a 5.5 billion euro (4.50 billion pounds) capital injection by Belgium and France.

The executive European Commission waved through the restructuring of Dexia, once the world's largest municipal lender, which will be almost totally nationalised with a large part of its borrowing also supported by guarantees from Belgium, France and Luxembourg.

Dexia's shareholders last week accepted that France and Belgium would own almost 96 percent of the group to avoid an immediate liquidation that board members warned could have caused a Lehman-style shockwave across Europe.

"As foreseen by our rules, the approved plan ensures that the continued market presence of some parts of the Dexia group is truly justified, without artificially keeping alive a failed business model, and that competition distortions resulting from the aid received are minimised," EU Competition Commissioner Joaquin Almunia said in a statement.

"...The plan brings the cost for the taxpayer down to the level strictly necessary to carry out the orderly resolution process," said Almunia, who as competition regulator oversees state aid schemes within the 27-member European Union.

Belgium bought the group's retail operations in the country, now known as Belfius, for 4 billion euros in October 2011, when Dexia was bailed out for a second time.

The Commission said Belgium had made adequate commitments to not distort competition in the banking and insurance markets where Belfius was active.

Belfius would also adequately contribute to the costs of its own restructuring, the Commission statement added.

Belfius said in a separate statement on Friday that its strategic plan ruled out acquisitions until the end of 2014.

The Commission also approved plans for Dexia's French lending operations, which will be merged into a new entity with participations from the French state, Caisse des Depots et Consignations (CDC) and the postal bank.

"The new development bank structure in France will exclusively grant loans in sectors where there is a well identified market failure, i.e. loans to French local authorities and public hospitals," the Commission said.

Shorn of its businesses, including retail banking and asset management, Dexia will be a portfolio of bonds and outstanding loans in run-off, kept afloat by state aid.

(Reporting by Robert-Jan Bartunek and Philip Blenkinsop; editing by Rex Merrifield)

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