(Lux Lake, USA) - Efforts to save the troubled cross-border European bank Dexia gathered pace Thursday, with its shares suspended from trade after official talks got underway to sell off its Luxembourg subsidiary.
Reports in Brussels also said the Belgian government, which along with France is a major shareholder in the bank, favoured nationalising its operations there.
The NYSE Euronext stock exchange suspended trading in Dexia shares in mid-afternoon following a request of the Belgian market regulator, FSMA.
Trading in the stock was halted at 1359 GMT during a session in which it had fallen 17.24 percent to 0.85 euros per share.
The FSMA requested the suspension until Monday due "to the high volatility of the shares following the announcement of exclusive talks on the sale of Dexia Bank International in Luxembourg, a meeting of the bank's board on Saturday October 8 and various contradictory information circulating about the group," the exchange told AFP.
Luxembourg Finance Minister Luc Frieden said earlier that talks were at an advanced stage with an international investor ready to acquire Dexia's Luxembourg operations, Dexia BIL.
The talks "should conclude by the end of the month," Frieden said, adding that the Luxembourg state would remain a minority shareholder in the bank, which has a staff of 5,500.
France and Belgium were forced earlier this week to step in to rescue Dexia, the first European bank to be dragged down by the eurozone debt crisis.
The bank, which also had to be rescued in 2008 in the global financial crisis, relied heavily on money market funding for its operations but such financing has become scarcer and more expensive for eurozone banks due to concerns over their sovereign debt exposure.
Business daily L'Echo said Thursday that the Belgian government favours nationalising what is left and Finance Minister Didier Reynders has been tasked with the negotiations.
Asked to comment by AFP, the Belgian government would not confirm its intentions.
Dexia said it had no information about its future.
"Dexia wishes to emphasise that it has not been informed of any decision or draft decision on future options for the Group," a statement said in Brussels, adding that a board meeting would take place Saturday "which will discuss various options on the future of the Group."
The French government is looking at hiving off operations involving tens of billions of euros in outstanding loans with local government authorities in the country, handing them to a French government fund and a state-run postal bank.
A new bank would be created dedicated to lending to municipalities while some 80 billion euros in outstanding loans would continue to be held by the Dexia Municipal Agency (Dexma), sources told AFP.
The Caisse des Depots is reluctant to take a majority stake in Dexma over concerns about toxic assets and has been seeking the French state guarantees.
So far the French and Belgian governments have only offered guarantees for Dexia financing and deposits, not on its assets, as that would risk weakening their public finances.
Banque Postale would hold a 65 percent stake in the new bank to be set up and the Caisse des Depots would hold 35 percent, according to the sources.
There are also tensions about the sharing of the potential costs in splitting up Dexia.
"The discussions are extremely complex technically and are complicated by the economic and political power games of the actors involved," a source told AFP.
"Everyone involved understands well that there is a common interest but at the same time no one wants to take on bad risks," the source added.
