Dexia Will Cut 900 Jobs After Fourth-Quarter Loss

Dexia SA, the world’s largest lender to local governments, will cut about 900 jobs this year to reduce costs after an estimated 2.3 billion-euro ($3 billion) fourth-quarter loss.

Dexia plans to stop proprietary trading and focus on public finance in its main markets of France, Belgium and Luxembourg, the Paris-and Brussels-based company said today. The job cuts, which amount to about 3 percent of staff, will lead to savings of 200 million euros in 2009, Dexia said. The bank aims to triple that cost cutting amount over three years.

“It was difficult to do otherwise,” said Christophe Ricetti, a Paris-based analyst at Natixis Securities who has a “reduce” rating on the stock. “I’m not optimistic that conditions at Dexia would become acceptable again soon with its current scope of business.”

Dexia, which got a 6.4 billion-euro lifeline from France, Belgium and Luxembourg last September to avert collapse, is among the worst-hit European banks following the failure of Lehman Brothers Holdings Inc. Chief Executive Officer Pierre Mariani agreed in November to sell an unprofitable U.S. bond- insurance unit to Assured Guaranty Ltd. for $722 million and pledged to slash costs by 15 percent over three years.

No Dividend

Dexia won’t pay a dividend or bonuses to top managers for 2008 after posting a full-year net loss of 3 billion euros.

The bank’s board members will have their salary cut 50 percent this year as part of the cost-cutting plan and ways of attributing bonuses within the company will be rethought, Mariani said at a press conference in Brussels.

“We are reducing the lifestyle of the company, behaviors will be changing,” said Mariani, 52. “Everyone will be making an effort.”

The company fell 7.2 percent to 2.46 euros in Brussels trading, valuing the bank at 4.3 billion euros. The shares have declined 85 percent in the past 12 months.

“We hope that with the step-by-step improvement of the restructuring program, we can find in 2009 again a certain profitability,” Chairman Jean-Luc Dehaene told Bloomberg News in an interview today in Brussels. “The aim should be at least that we are not in a loss situation like we are today.”

Less Risk

Dexia will take less risk in its trading activities and concentrate them in Brussels and Dublin. The bank will stop public finance operations in Australia, Eastern Europe, Mexico and Scandinavia and reduce lending to local governments in the U.K. and the U.S. The Slovakian unit Dexia Banka Slovensko will be kept as well as public finance operations in Italy and the Iberian Peninsula.

The French-Belgian lender is facing an increased cost of funding after the bankruptcy of Lehman froze credit markets. Dexia had to accept state guarantees on borrowings with a maturity of up to three years to fund its lending activities.

Dexia’s “liquidity situation” is gradually improving, the bank said. It had a Tier 1 capital ratio, an indicator of financial strength, above 10 percent at the end of December.

Deposits at the retail banking network in Belgium increased at the end of December from the end of September, Mariani told reporters.

FSA Losses

The bond insurance unit, Financial Security Assurance Inc., contributed 1.7 billion euros to the fourth-quarter loss. In addition, Dexia had 1.2 billion euros of provisions and writedowns related to the financial crisis. The bank plans to complete the sale of the bond insurer at the beginning of the second quarter.

Dexia agreed to sell FSA’s insured portfolio of $425 billion, including $110 billion of asset-backed securities, to Assured Guaranty, the bond insurer backed by billionaire Wilbur Ross. Dexia agreed to cover losses of as much as $4.5 billion on FSA’s $16.5 billion financial products portfolio, which includes subprime mortgage-backed securities.

FSA’s financial-products portfolio is excluded from the Assured Guaranty deal. Dexia said Nov. 14 it will cover losses of as much as $3.1 billion from that unit on top of the $1.4 billion provisioned by Sept. 30. The French and Belgian states will guarantee the unit’s assets, Dexia said.

Dexia will publish detailed full-year results on Feb. 26.

Cource:- Bloomberg