Solid business for sale

THE FRENCH-Belgian Dexia group is seeking a new majority shareholder for its subsidiary company in Slovakia, Dexia banka Slovensko (DBS), before October 2012 in order to comply with an agreement it reached with the European Commission regarding the reorganisation of the group and the improvement of Dexia Group’s balance sheet. Stefaan Depaepe, CEO of Dexia banka Slovensko, is convinced that the new majority shareholder will acquire a solid banking operation in Slovakia, one with a unique business model. The Slovak Spectator spoke to Depaepe about the developments that led up to the agreement between Dexia Group and the EC leading to the future divestiture of its Slovak banking business.

The Slovak Spectator (TSS): What caused Dexia Group to need government assistance in 2008?

Stefaan Depaepe (SD): The global financial crisis emerged in the fall of 2008 because of a lack of confidence in the financial markets after the collapse of Lehman Brothers due to the subprime housing loan crisis in the United States. This development, unseen in the financial world, resulted in banks all over the world becoming distrustful of each other, causing the interbank market to suffer dramatically. As a result, banks stopped lending to each other, thus opening the door to the liquidity crisis. Because Dexia Group was depending heavily on liquidity provided by wholesale funding markets, it got into trouble while trying to refinance its long-term assets. For that reason Dexia Group was provided state aid [an increase in capital] by the French, Luxembourg and Belgian governments and state guarantees for bonds issued by Dexia Group. This crisis pushed Dexia Group to implement a strategic transformation plan which was then submitted to the European Commission and was approved in February 2010.

TSS: How much financial aid was injected into Dexia Group in 2008?

SD: In autumn 2008, the Belgian, French and Luxembourg authorities implemented a number of measures to assist the banking group. First, there was a capital increase of €6.4 billion announced on September 30, 2008 and subscribed to by these states and Dexia’s existing shareholders; second, a guarantee mechanism was established by these states for bonds issued by Dexia; third, there was liquidity assistance provided by the Belgian and French central banks; fourth, there was a guarantee by the Belgian and French states of the financial products of FSA, a Dexia subsidiary, announced on November 14, 2008.

TSS: How many shares of Dexia banka Slovensko will be sold by Dexia Group?

SD: Dexia Group owns 88.7 percent of the shares of Dexia banka Slovensko.

TSS: Apparently, this future ownership change will not affect the bank’s customers. But can the new owner change the design, name or character of current products of Dexia banka Slovensko?

SD: The new majority shareholder of Dexia banka Slovensko is obliged to respect all the contracts that have been concluded between the bank and its customers. A change in ownership will not impact contractual relationships between the bank and its customers.

TSS: Is there any guarantee that the new owner must comply with the continuity of Dexia banka Slovensko?

SD: We will not speculate about the future majority shareholder but we are convinced that the new majority shareholder of DBS will acquire a solid bank, one with a unique business model. It is obvious that the new shareholder who invests in Dexia banka Slovensko will have an interest in the continuity of the business otherwise the investment would not be profitable. The new shareholder will need to respect all regulatory requirements and also requests by Dexia Group. Until the sale of Dexia banka Slovensko is accomplished, Dexia Group will continue to support DBS and prepare the bank for the future by fully respecting the interests of all its stakeholders.

TSS: Will the new owner be able to use the trade name ‘Dexia’?

SD: Of course not; the name Dexia is protected and can be used only by Dexia Group.

TSS: What were Dexia banka Slovensko's financial results?

SD: Dexia banka’s individual retail deposits reached 4 percent of the overall market in August 2009. Customer deposits amounted to €1.8 billion at the end of September 2009, representing a 6 percent increase when compared to the beginning of the year. Regarding its banking activities with public entities, DBS is a leader in Slovakia, with a market share of 79.2 percent in the segment of municipal loans at the end of August 2009.

DBS recorded a net loss of €2.4 million for the first three quarters of 2009, and this fall in economic results can be attributed to the considerable drop in interest income due to the sharp decrease in market interest rates since the beginning of 2009. Dexia Group announced a net profit of €274 million for the third quarter of 2009. For nine months of 2009 it recorded a net profit of €808 million.

TSS: Why have only Dexia banka Slovensko, Dexia Crediop and Dexia Sabadell been affected by this decision of Dexia Group?

SD: This is not entirely correct. Significant achievements in Dexia Group’s transformation plan have already been carried out through the sale of its 100 percent-owned US subsidiary, FSA Inc; by the sale of a 49-percent stake in Kommunalkredit Austria; the sale of a 20-percent stake in Crédit du Nord, a retail bank in France; and the sale of Dexia Epargne Pension, a life insurance company in France. As part of its final negotiations with the European Commission, Dexia Group decided to divest itself of three additional subsidiaries: Dexia Crediop (a 70-percent stake) and Dexia banka Slovensko (an 88.7-percent stake) by October 31, 2012; and Dexia Sabadell (a 60-percent stake) by December 31, 2013.

Dexia Group considers these business entities as strong and attractive franchises. Given its objective to rapidly improve its balance sheet, Dexia Group agreed to divest these entities. During this period the divestment will be organised in a way so that the value of these entities will be assured and the future development for the respective teams is guaranteed. The final objective for Dexia Group is to reduce its risk exposure and to refocus itself on its core activities in its historical markets and in Turkey.