Dexia Group, the Belgian-French financial institution, may be forced to sell off a large portion of its core public financing division, if it fails to convince the European Commission (EC) that the business is sustainable, reported The Wall Street Journal.
Of late, Dexia’s public finance business has been profitable as its borrowing costs have been low. It has also been able to boost its liquidity in recent months by issuing covered bonds. However, EC is worried that these sources of funding could evaporate in another crisis.
Reportedly, Dexia survived the financial crisis due to repeated government bailouts. EC is taking a tougher stance and Dexia is under pressure to reduce its balance sheet by 40% or more. EC remains skeptical after months of negotiations over a restructuring plan Dexia submitted in February this year.
However, Dexia said that the problems with its balance sheet are related to its bond portfolio, not its government loan business. EC recently extended approval until February 2010 for the government guarantees of Dexia’s debt. A decision on the plan is expected to be announced by the end of the year, reported the newspaper.
