Shares in Dexia bank plummeted 33% when they resumed trading today after the lender became the first major victim of a worsening credit squeeze in Europe.
Shares in the bank had been suspended since Thursday as governments in Belgium, Luxembourg and France figured out how to save the bank.
The bank's management announced earlier today that the Belgian state would buy its home retail arm for €4 billion. The three will provide €90 billion in guarantees for Dexia's funding while the bank readies the sell-off of other businesses.
Earlier, EU competition chief Joaquin Almunia welcomed the "stabilising effect" of a deal between Belgium, France and Luxembourg to rescue Dexia, the first bank to fall victim to the euro zone debt crisis.
The EU executive, responsible for ensuring commercial fair play to protect the single European market, "takes note of the announcement made by the French, Belgian and Luxembourgish authorities of a new restructuring plan for Dexia," Almunia said in a statement.
"It welcomes the stabilising effect of the agreement on the banking group and for the financial system as a whole,'' he added.
The European Commission's competition authorities under Almunia are already monitoring promises made in exchange for state aid granted to Dexia when it was bailed out in 2008 and will again have to approve the latest restructuring.
Almunia said the competition decision will be taken based on the usual criteria, citing long-term viability; fair burden-sharing of the restructuring and ensuring that "sufficient measures are taken to address competition distortion."
European states rescue Dexia
Belgium, France and Luxembourg rescued Dexia today, splitting up the bank after it became the first lender to succumb to Europe's debt crisis as the eurozone braced to recapitalise its banks. It was the second time in three years that Dexia needed to be rescued.
This time, Belgium agreed after board and cabinet meetings to pay €4 billion for Dexia's domestic consumer-lending unit. The dismantling of what was one of the largest lenders in France and Belgium three months after it passed European stress tests brought the banking crisis from the continent's Mediterranean periphery right to its economic heart.
Belgian Prime Minister Yves Leterme told a news conference that the takeover of Dexia Bank Belgium would "make secure" the retail bank and free it from "any risks resulting from the environment within parent body Dexia.
"Households can be sure and certain that their money is safe in their current accounts," Leterme said. "The taxpayer will not be called on to contribute too much as the risk is under control and the cost of the operation is relative."
Despite his reassurances, Dexia chief executive Pierre Mariani said clients made "significant withdrawals" from their accounts before the agreement was announced.
French Finance Minister Francois Baroin insisted that Dexia's rescue was an isolated case and that banks in trouble were already identified in the European stress tests on the industry earlier.
Amid mounting fears the debt crisis could sink the banking sector, German Chancellor Angela Merkel and French President Nicolas Sarkozy vowed yesterday a response within weeks and insisted they were united on plans to shore up lenders.
Without announcing concrete details, Sarkozy promised, after talks with Merkel in Berlin, "lasting, global and quick responses before the end of the month" amid growing fears of a crippling credit crunch.
In Paris, the Dexia board said the government takeover of Dexia Bank Belgium was in the "social interest" of the group. Belgian Finance Minister Didier
Reynders told the press conference that the €4 billion offer for Dexia Bank Belgium was "reasonable" and that the government does not want to keep control "indefinitely."
In France, the government is aiming to create a new bank focused on local communities and owned by the Postal Bank and a public investment group, Caisse des Depots (CDC). Investors from Qatar's royal family meanwhile have agreed to buy the group's Luxembourg unit, Dexia BIL.
The break-up of the bank became inevitable after worries over Europe's sovereign debt caused a severe liquidity crisis and the rescue of a bank with a balance sheet of half a trillion euros - bigger than the entire Greek banking system - was seen as crucial to stop contagion.
Reynders said Belgium would guarantee the financing of the future "bad bank" that would remain to hold high-risk assets after the dismantling of the Dexia group, to the tune of 60.5%, or €54 billion.
The guarantee by the three states - France, Belgium and Luxembourg - where Dexia is present amounted to €90 billion, he said, against €150 billion when it was rescued in 2008 at the start of the global financial crisis. The trio agreed to a similar split of the burden as in 2008 - 60.5% for Belgium, 36.5% for France and 3% for Luxembourg.
By providing guarantees, Baroin said the French government was not increasing its debt, therefore ensuring that it will keep its prized triple-A credit rating intact.
On Friday, ratings agency Moody's said it had placed Belgium's credit worthiness under review and that a downgrade was possible partly due to the Dexia bail-out plans.
