Dexia is in negotiations to sell off its Luxembourg affiliate to a group of international investors and the Luxembourg government, the troubled Franco-Belgian bank said Thursday, in what is likely to be the first step in a massive rescue and restructuring.
That announcement did not stem the flight from the Franco-Belgian bank's shares, which fell another 11 percent in morning trading. Bar a modest rally on Wednesday, Dexia's share price has been under massive pressure this week and its woes have rekindled fears of a banking crisis similar to the one that gripped financial markets in the autumn of 2008 in the aftermath of the collapse of Lehman Brothers.
Dexia is highly exposed to the debts of some of Europe's more indebted countries, including Greece and Italy. Fears that those countries could default are making other banks wary of lending to Dexia, which as a result is finding it increasingly difficult to fund its day-to-day operations.
Its problems came to a head this week as investors dumped its shares _ driving its stock price down 40 percent at one point _ amid speculation it would go bankrupt. In response, the French and Belgian governments both guaranteed its financing and deposits.
Its woes have prompted a rescue operation in Paris and Brussels. On Wednesday, French finance minister Francois Baroin said the bank could not continue in its present state and that it's board would unveil a solution as soon as Thursday.
The first piece of that came from Luxembourg, where Dexia Banque Internationale a Luxembourg is based.
Dexia said it was in exclusive discussions with a group of international investors to sell the Luxembourg affiliate and that the Luxembourg government would play a role.
The government confirmed that it was ready to take a minority stake in the bank.
Dexia said the board would make a decision on the offer at the end of an exclusive period, the length of which it did not specify. But a statement from the Luxembourg government said negotiations were at an advanced stage.