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Dexia's Core Entities Remain On Watch Developing; Awaiting Details Of New Strategy
PARIS (Standard & Poor's) Oct. 10, 2008--Standard & Poor's Ratings Services
said today that it is maintaining on CreditWatch its 'A+/A-1' long- and
short-term counterparty credit ratings on four banks belonging to Belgium-based banking group Dexia S.A., where they were placed on Oct. 7,
until it resolves the uncertainties about new management's strategy.
Remaining on CreditWatch with developing implications are the group's
core entities, Dexia Crédit Local (DCL), Dexia Bank S.A. (DB), and Dexia
Banque Internationale à Luxembourg (DBIL).
Remaining on CreditWatch with negative implications is Italy-based Dexia
Crediop SpA.
The 'BBB' debt ratings on the group's hybrid capital instruments and
junior subordinated remain on CreditWatch with negative implications.
The 'AAA' senior secured debt ratings on all covered bonds that Dexia has
issued remain unchanged.
The governments of France, Belgium, and Luxembourg jointly undertook to guarantee, starting today and until Oct. 31, 2009, new interbank and bond
financing for Dexia. The guarantee concerns DCL, DB, DBIL, and Dexia S.A. It
is a crucial support measure that stabilizes Dexia's liquidity.
"We consider the Dexia group to be a government-related entity (GRE) and include three notches of support from Dexia's state shareholders in the
long-term ratings on DCL, DB, and DBIL," said Standard & Poor's credit analyst Taos Fudji.
The French, Belgian, and Luxembourg governments and France-based Caisse des Dépôts et Consignations (CDC; AAA/Stable/A-1+) now control about 50% of Dexia's capital, following a €6.4 billion capital injection finalized Oct. 3. We consider the group as having high systemic importance in those countries, which we classify as "supportive."
The governments' guarantee covers Dexia's new issues of wholesale funding of up to three years' maturity. It is intended to assist the group in
refinancing debt maturities as they fall due. This guarantee is renewable for
one year. Timely guarantees by the governments would be positive rating
factors for debt issues, where applicable.
We believe that the government guarantees and the €6.4 billion in fresh
equity together stabilize Dexia's financial profile. The capital injection
will provide a strong cushion against possible higher-than-expected impairment charges both in Dexia's securities portfolio and in the group's subsidiary, U.S. monoline insurer Financial Security Assurance Inc. (FSA; AAA/Watch Neg/--), enabling the group to keep capitalization adequate for the ratings.
The government guarantee should help Dexia fund its public finance business.
"The CreditWatch placements, with developing implications, for DCL, DB,
and DBIL, reflect ongoing uncertainty regarding the future strategic options
that the new top management will take and its repercussions on Dexia group's future business and financial profile, " said Mr. Fudji.
"The CreditWatch placement, with negative implications, for Dexia Crediop
reflects potential weakening of group support, given uncertainties about new
management's strategy vis-à-vis its Italian operations," Mr. Fudji added.
The 'A+' rating on Dexia Crediop factors in a one-notch uplift above the
bank's stand-alone credit quality.
We will resolve the CreditWatch placement for DCL, DB, and DBIL after
having discussed with the recently appointed management team its new strategy for Dexia group and its individual parts.
Depending on the scope and nature of decisions management makes and of the ensuing implications for group members, we could either affirm, raise by one notch, or lower by one notch the ratings. We may decide that rating
distinctions among the various entities are warranted. Given Dexia's strong
support for and partial ownership by highly rated governments, we believe the ratings are very unlikely to fall below the 'A' category.
Our resolution of the CreditWatch placement for Dexia Crediop will follow
the CreditWatch resolution on DCL, DB, and DBIL. The ratings on Dexia Crediop could be either affirmed or lowered by one notch.
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