Belgium, France, Luxembourg: Dexia Restructuring, 2008–2012

The restructuring and resolution of Dexia SA took place across three phases; an initial transformation plan in 2008, followed by separations of DBB and DBIL in 2011, and an orderly resolution plan in 2012.

Dexia primarily relied on wholesale funding markets due to the impossibility of a material increase in its customer deposit-taking activities. As such, the freezing of interbank and capital markets in the aftermath of the collapse of Lehman Brothers caused a significant short-term liquidity gap for Dexia. Impairments on credit assets and exposure to struggling sovereign counterparties worsened Dexia’s situation. Markets had first expressed worries about Dexia’s exposure to FSA in July 2008 after short-seller Bill Ackman voiced concerns about the insurer (Boudghene et al. 2010; Forbes 2008).

In response to its financial difficulties, Dexia’s Board of Directors decided to pursue a capital increase of EUR 6 billion, which was provided by the Belgian and French governments. At the time, Dexia had estimated EUR 350 million in immediate losses due to the collapse of Lehman Brothers, and later reported a loss of EUR 3.2 billion associated with FSA (EC 2008; Maitre 2009; White 2008).

2008 Transformation Plan

In the immediate aftermath of the capital injection, Dexia’s new leadership first looked to sell the insurance activities of FSA, which contributed EUR 3.1 billion to Dexia’s EUR 3.3 billion net loss in 2008. Authorities considered a good bank, bad bank split, but French and Belgian officials rejected various proposals due to differences in the goals of the two authorities. French authorities sought to preserve Dexia as a key source of municipal funding while Belgian authorities were concerned primarily with financial stability (Dexia 2009; IMF 2014).

A key prerequisite for the sale of FSA was a government guarantee on the impaired assets contained in the subsidiary’s portfolio. On November 14, 2008, Dexia’s leadership secured a sale and purchase agreement with Assured Guaranty for FSA and presented a restructuring plan involving further measures intended to reduce the Group’s risk profile, prioritize business lines in its historic markets of Belgium, France, and Luxembourg, and reform the cost structure (for more on the sale of FSA, see Appendix A). The disposal of FSA reduced Dexia’s risk exposure in 2009, and the governments of Belgium, France, and Luxembourg proceeded to submit a restructuring plan to the European Commission in February 2009. The restructuring plan was intended to restore the long term viability of Dexia, share the cost of the restructuring, and compensate for the distortions of competition^FNAvoiding distortions to market competition was an important pre-condition for EC approval. (Boudghene et al. 2010; EC 2010a; Dexia 2009; Laprévote and Coupé 2017).

2011 Separation of DBB and BIL

In May 2010, despite the significant de-risking of Dexia’s portfolio through the disposal of FSA and other subsidiaries, the sovereign debt crisis delivered another liquidity shock and revealed major losses in the asset portfolio. During the eurozone crisis, Dexia held EUR 22 billion in sovereign bonds, and write downs on some of this debt exceeded 21%. Dexia had passed a series of stress tests throughout 2010 and exited the state credit guarantee program on June 30, 2010. The Group’s interest rate swaps created the largest liquidity issue, and by September 2011, the Group faced EUR 44 billion in margin calls on this portfolio. Moody’s placed Dexia Bank Belgium, Dexia Crédit Local, and Dexia Banque Internationale à Luxembourg under review for downgrade on October 3, 2011 (De Groen 2011; Dexia 2011c; Thomas 2012; Whitbeck 2013).

Faced with large-scale runs from Belgian and Luxembourgish depositors, officials from Belgium, France, and Luxembourg commenced negotiations regarding the breakup of Dexia on October 7, 2011. Belgian authorities stressed that the purchase of DBB was urgent as a matter of financial stability. The purchase would prevent a major loss of public confidence that might cause a run on the bank, which would in turn have serious implications for the Belgian banking sector and the larger European banking system. Authorities and Dexia’s Board of Directors announced the Belgian nationalization of DBB and ongoing negotiations for the sale of DBIL on October 10, 2011 (Dexia 2011b; EC 2013). 

2012 Orderly Resolution Plan

Following ongoing State Aid measures throughout 2011 and early 2012, authorities collaborated with Dexia’s Board of Directors to create a resolution plan for Dexia SA. Dexia SA entered orderly resolution in December 2012, ending the Group’s commercial activities. The mandate of management became the disposal of assets while avoiding systemic risk and any further recourse to the French and Belgian taxpayers who owned the majority of the Group’s equity. To promote stability and resolve the negative equity situation at Dexia SA, Belgian and French authorities provided a EUR 5.5 billion capital injection (Dexia 2013; Dexia 2023a; EC 2013).

Figure 2 provides a broad overview of the aid measures provided to Dexia during the 2008 transformation plan, 2011 separations, and 2012 orderly resolution plan.

Figure 2: Other Intervention Measures Related to Dexia Restructuring

Sources: EC 2008; EC 2010a; EC 2013

During the acute phase of the Global Financial Crisis (GFC), Dexia accessed Federal Reserve liquidity through its New York banking office, borrowing $58.5 billion in September 2008 (Wiggins et al. 2019).

Before the drafting of the 2008 restructuring plan, Belgian and French authorities provided a EUR 6 billion capital injection in the fall of 2008. The French and Belgian Central Banks also provided Dexia with Emergency Liquidity Assistance (ELA) totaling EUR 15 billion on October 1, 2008. The capital injections are described in greater detail in (George, forthcoming)^FNThe Dexia capital injection preceded a broad-based capital injection program administered by the French Société de prise de participation de l’Etat (SPPE). For details, see Jeffereis (2021).. Belgian, French, and Luxembourgish authorities also provided a credit guarantee for Dexia on October 9, 2008, which came into effect on October 31, 2008, with a maximum of EUR 150 billion. The guarantee covered new financing with a maximum maturity of three years, and Dexia’s leadership committed to reducing its dependence on short-term financing as part of the guarantee agreement. The maximum amount was first reduced to EUR 100 billion, and eventually to EUR 80 billion. The Dexia guarantee became the model for a system wide credit guarantee that Belgium enacted in October 2008 (EC 2008; EC 2010a; EC 2013; Lawson 2020).

Authorities also created an “impaired asset measure” for Dexia in November 2008. The measure provided an additional guarantee for the bank’s risky structured credit portfolio. Though ultimately never drawn upon, the EC assessed the measure as EUR 3.2 billion of State Aid. The creation of this measure was a key prerequisite for the sale of FSA to Assured Guaranty on November 14, 2008 (Boudghene et al. 2010; EC 2013; IMF 2013; Maitre 2009).

In response to sovereign credit losses and the liquidity shock during the eurozone crisis, French and Belgian authorities provided a EUR 5.5 billion capital injection in 2012 to facilitate Dexia’s orderly resolution. Joined by Luxembourg, these authorities also provided a credit guarantee for Dexia SA and DCL along similar terms as those provided as part of the 2008 restructuring (See Key Design Decision No. 8, Approach to Resolution and Restructuring). This guarantee carried a maximum of EUR 85 billion and total guaranteed bonds amounted to EUR 38 billion in 2022. Dexia paid a monthly commission of EUR 22 million for its guaranteed financing and research has not revealed any state losses associated with the guarantee program. In addition, the European Central Bank (ECB) provided ELA in October 2011. The Banque Nationale de Belgique provided ELA to support the separation of DBB/Belfius from Dexia SA, and authorities notified the EC of this measure on October 21, 2011. DBB/Belfius stopped using the ELA support by February 2012 (Dexia 2011a; Dexia 2012; Dexia 2023c; EC 2013).

Article 108(2) of the Treaty on the Functioning of the European Union gave the EC final approval power over intervention measures implemented by member states (EC 2012).

The Law of April 2, 1962, established the Federal Participations and Investment Company (SFPI), a quasi-private entity which handled government interventions into Belgian businesses. SFPI had the authority to take equity stakes in Belgian companies and participate in their management. Regarding capital injections, Book V Part V of the Act of 7 May 1999 established the laws regulating capital increases in Belgian institutions. Article 598 of the Act of May 7, 1999, dictated the share price, stating that price of issuance cannot be less than the average over the course of the thirty preceding days (SFPI 2021; Government of Belgium 1962; Government of Belgium 1999).

Regarding French participation in the capital injections, a decree issued on September 9, 2004, established the French agency responsible for public shareholdings and outlined its powers (Government of France 2004).

A coalition of government and central bank officials from Belgium, France, Luxembourg, and the ECB collaborated with Dexia’s board of directors to plan and implement the intervention measures (Thomas 2012).

Following the EUR 5.5 billion capital injection, more than 94% of Dexia’s share capital was owned by the governments of Belgium and France. As a result, government officials from these two states were heavily involved in the creation of the orderly resolution plan. Unlike the 2008 negotiations, existing institutional shareholders did not participate in the creation of the orderly resolution plan. Based on this plan, the CEO of the bank was given the mandate solely to oversee the gradual disposal of assets (Dexia 2013; Thomas 2012).

As of 2020, the government owned 100% of Belfius, with its stake administered by SFPI. SFPI also administered the liquidation of Dexia, with a 53% stake as of 2020. A board of directors governs SFPI, with its duties outlined in the Governance Charter (SFPI 2014; SFPI 2021).

A transition committee of representatives from DBB/Belfius, Dexia SA, and the Belgian State managed the implementation of Dexia and Belfius’s separation to ensure operational continuity (SFPI 2012).

An independent trustee was to submit a half-yearly report to the European Commission  detailing the implementation of Dexia’s commitments as laid out by the restructuring plan. The reports were to be submitted before October 1 and April 30 of each year. In the reports of November 30, 2010, April 29, 2011, September 26, 2011, and May 22, 2012, the independent trustee observed several issues regarding Dexia’s compliance with existing commitments. The EC opened a formal investigation procedure in response to these complaints (EC 2010a; EC 2013).

Belgium was the consolidated supervisor of Dexia, and a memorandum of understanding  backed the supervisory college of Belgium, France, and Luxembourg. Prudential supervision of banks transferred to the National Bank of Belgium (NBB) in early 2011. Accordingly, the December 2012 orderly resolution plan placed Dexia under the supervision of the Prudential Control and Resolution Authority, a division within the Bank of France, and the NBB. This structure was established based on Dexia’s placement as a Less Significant Institution under the single supervisory mechanism (Dexia 2023a; IMF 2014).

As a 100% state-owned bank, Belfius leadership consulted with SFPI periodically concerning company performance and risk management (Belfius 2023b).

On February 8, 2010, Dexia’s CEO held a phone call with investors to discuss the progress of the restructuring plan submitted to the EC the previous year. Within the call, the CEO also mentioned Dexia’s commitment to submit twice-yearly reports to the EC regarding the restructuring plan. At the conclusion of his statement, the CEO said that he was “very confident in our [Dexia’s] capacity to come back to a more normal funding structure, to a profitable business and to a strong development story for our core businesses” (Dexia 2010b, 5).

In its 2011 Annual Report, Dexia’s management reported that it was ahead of schedule on several aspects of the restructuring plan as of June 2011. Faced with the start of the eurozone sovereign debt crisis, French sources stated on October 4, 2011, that they would not be providing further capital for Dexia. However, the Belgian and French states provided further state guarantees on October 5, 2011, to facilitate Dexia’s restructuring, citing the need to protect depositors and creditors. Following the announcement of the guarantee, Belgian and French authorities defended the measures impact on European financial stability and the protection of depositors. In particular, French authorities stated that Dexia was an isolated case, entirely separate from other French banks. Authorities announced the full resolution proposal on October 9, 2011, but remained terse on providing details to the press (Agence France-Presse 2011; Dexia 2012; Melvin 2011; Pignal et al. 2011; Vey 2011).

The CEO of Dexia announced the board’s approval of the measures to shareholders on October 10, 2011, citing the importance of the plan as a response to the sovereign debt crisis while making clear that some parts of the deal would be negotiated in later board meetings (Dexia 2011a).

The Dexia board also stated that the government nationalization and separation of DBB was in the “social interest” of Dexia SA as a whole (Local FR 2011). The Belgian Prime Minister called the EUR 4 billion cost “reasonable” and emphasized the government’s intention to eventually re-privatize the bank. The CEO and CFO provided updates on the progress of the resolution measures in a call with shareholders on November 9, 2011 (Dexia 2011d; Local FR 2011).

Dexia’s annual reports provided updates on each year’s progress regarding the restructuring plan and eventually the orderly resolution (Dexia 2009; Dexia 2010a; Dexia 2011c; Dexia 2012; Dexia 2013). Belfius emphasized its intention to reprivatize in its 2016 annual report. Given its large role in Belgian public finance, Belfius leadership intended for as much of its ownership as possible to remain in Belgium. After announcing preparations for a partial IPO in its 2017 annual report, the SFPI delayed the partial re-privatization in 2018, citing volatility in financial markets. The impact of COVID-19 on financial markets further disincentivized the re-privatization of Belfius (Belfius 2017; Blenkinsop 2018; SFPI 2018; SFPI 2019; SFPI 2020).

Belgium and France took majority stakes in Dexia through the EUR 6 billion capital injection provided to the Group in October 2008. Of this total, EUR 5.2 billion was provided by public sources. The rest was provided by quasi-private bodies that were existing shareholders in Dexia SA (Dexia 2009).

The Belgian contribution to the capital injection was divided between different regions and government entities. The Belgian state directly invested EUR 1 billion, with the Flemish Region and Holding Communal SA each contributing EUR 500 million. The Walloon Region and Arcofin SC each contributed EUR 350 million, while the Brussels-Capital Region and Ethias contributed EUR 150 million. This amounted to a Belgian contribution of EUR 3 billion. The EC did not classify the contributions from private firms Ethias, Acrofin, and Caisse Nationale de Prévoyance (CNP) Assurances as State Aid. Ethias had not been nationalized at the time of the capital injection, and the majority of the shareholders for Arcofin and CNP Assurances were private actors. As such, these contributions did not constitute state resources, leading the commission to regard EUR 5.2 billion of the EUR 6 billion capital injection as State Aid (EC 2010a; EC 2010b).

The French State directly invested EUR 1 billion, which was managed by the Agence des Participations de l’Etat. The Caisse des Dépôts et Consignations (CDC) provided EUR 1.71 billion and CNP Assurances provided EUR 228 million, bringing the total French contribution to just under EUR 3 billion. The EC considered the CDC contribution to be State Aid while the CNP Assurances contribution did not constitute State Aid (EC 2008; EC 2010a).

The governments of Belgium, France, and Luxembourg provided a guarantee to Dexia to allow the Group to finance itself throughout the restructuring. In the initial restructuring plan, the restructuring was assessed to cost EUR 8.4 billion. This sum broke down into the costs associated with the capital injection and the sale of FSA (EC 2010a).

The direct costs associated with the orderly resolution plan in 2012 included the capital injection and the guarantee provided to DCL. The capital injection totaled EUR 5.5 billion, with 53% provided by Belgium and 47% provided by France. The guarantee provided to DCL was divided between Belgium (60.5%), France (36.5%), and Luxembourg (3%). These arrived alongside the previous EUR 4 billion Belgian government purchase of Belfius, and the EUR 730 million purchase of DBIL by a Qatari investment firm and the Luxembourgish government (Cleary Gottlieb 2012; Dexia 2011a; EC 2013).

2008 Recapitalization and Transformation Plan

On November 14, 2008, Dexia officials committed to restructuring the Group’s operations following the provision of a EUR 6 billion capital injection from Belgian and French authorities and existing quasi-private shareholders. Immediately after the capital injection, the first priority of Dexia’s leadership was to limit the Group’s US exposure by selling the insurance activities of FSA. Dexia and Assured Guaranty entered into a sale and purchase agreement on November 14, 2008, and the sale officially took place on July 1, 2009 (Dexia 2009; EC 2010a).

Through the activities of the restructuring plan, Dexia’s leadership aimed to refocus on the Group’s business lines in core markets (Belgium, France, and Luxembourg) while reducing risk and restoring balance to its liquidity profile. The series of measures were intended to reduce the size of Dexia’s balance sheet by 35% by December 31, 2014. In order to separate Dexia’s worst assets from its core business, the company created the Legacy Portfolio Management Division. Included in the Legacy portfolio were EUR 134 billion in bonds, EUR 17.7 billion in non-core public sector loans, and the EUR 15.5 billion Financial Products portfolio. This collection of activities in run-off and bad assets comprised 28% of Dexia’s total balance sheet at year-end 2009 and the EC required that all state guaranteed funding be allocated in full to the Legacy Division. The assets associated with Retail and Commercial Banking, Public and Wholesale Banking, Asset Management, and Group Center, remained in the “Core Division” of the balance sheet (Dexia 2010a; Dexia 2011c; EC 2010a). For a full discussion of the Legacy Division, see Key Design Decision, Treatment of Assets.

2011 purchases of DBB/Belfius and DBIL

The European Sovereign Debt Crisis of 2011 caused an irreparable shock to Dexia’s asset portfolio, largely due to its EUR 22 billion in sovereign debt exposure and EUR 96 billion in short-term financing needs. At year-end 2011, Dexia reported a negative equity position in its 2011 Annual Report. The emergency required authorities to adopt new intervention measures to avoid the systemic risk that would be caused by Dexia’s immediate liquidation (Dexia 2012; Dexia 2013).

On October 7, 2011, Belgian authorities notified the EC that they were nationalizing DBB and separating it from the rest of Dexia. DBB became an autonomous bank wholly owned by the Belgian state, with no ties to Dexia Group. Belgian authorities purchased DBB for EUR 4 billion, resulting in an estimated EUR 3.8 billion loss for Dexia SA. In order to emphasize its full separation from Dexia Group, authorities renamed the bank Belfius on March 1, 2011. Dexia SA reported a net loss of EUR 11.6 billion at year-end 2011 (Belfius 2012; Dexia 2011a; Dexia 2012; EC 2013; Thomas 2012). 

After the acquisition of DBB by the Belgian government, Belgian, French, and Luxembourgish authorities provided a joint credit guarantee to DCL in December. Belgium provided 51.4%, France provided 45.6%, and Luxembourg provided 3%. Authorities capped the guarantee at EUR 85 billion, a lower level than the 2008 guarantee, and charged an annual rate of 0.05%. Authorities set the guarantee term at 10 years, although it was renewable by public authorities if necessary 2011 (EC 2008; EC 2013; Thomas 2012).

On October 5, 2012, Cleary Gottlieb announced that Dexia sold DBIL, with a Qatari investment group acquiring 90% and the state of Luxembourg acquiring the remaining 10%. As part of the deal, Dexia provided a EUR 204 million capital injection to DBIL before the split to satisfy the Basel CT1 capital ratio of 9% (Cleary Gottlieb 2012; EC 2013).

2012 Orderly Resolution Plan

In March 2012, French, Belgian, and Luxembourgish authorities formally drafted an orderly resolution plan for Dexia and notified the EC. At year-end 2012, Dexia reported a net loss of EUR 2.9 billion, driven largely by the state guarantees, emergency liquidity, and the disposal of certain smaller subsidiaries (Dexia 2013; EC 2013).

For the resolution to be orderly, Belgian and French authorities provided a capital injection of EUR 5.5 billion into Dexia SA in December 2012, which resulted in government control of the firm. Belgium contributed 53% of the capital injection and France contributed 47%. Dexia’s orderly resolution plan received final EC approval on May 31, 2012.  Dexia remains in resolution as of the writing of this case study, with EUR 63 billion in assets left on its balance sheet (Dexia 2023a; Dexia 2023c; EC 2013). See Appendix B for the change over time in the size of Dexia’s balance sheet and the book value of the governments’ equity stakes. The Dexia and Belfius balance sheets are shown in Figure 3.

2008 Recapitalization and Transformation Plan

The initial capital injection into Dexia resulted in approximately 50% of its capital being held by public entities. In 2008, Dexia reported a net loss of EUR 3.3 billion in 2008 and shareholders did not receive a dividend. Belgian, French, and Luxembourgish authorities provided a joint credit guarantee to support Dexia’s ability to refinance itself and cover its liabilities (See Key Design Decision No. 2, Part of a Package) (Dexia 2009).

2011 Separations and 2012 Orderly Resolution Plan

Given that Belgium and France held the majority of Dexia’s shares, they provided a further EUR 5.5 billion capital injection to compensate for the massive losses in December 2012. This effectively nationalized Dexia, with only 4.5% of its capital still floating as of December 2012 (Dexia 2013; EC 2013). The ownership stakes of individual and institutional shareholders reduced from 30% at year-end 2011 to 4% at year-end 2012. This resulted in substantial losses for institutional shareholders ARCO and Holding Communal, forcing both into liquidation (Dexia 2012; Dexia 2013; EC 2013; Thomas 2012).

On October 5, 2011, the French and Belgian finance ministers stated that they would take “all necessary measures” to protect Dexia’s depositors and creditors (Pignal et al. 2011). This included extending the existing guarantee of Dexia’s bond issuances, which allowed the bank to finance itself. The final credit guarantee only explicitly covered new debt issuances by Dexia, up to December 31, 2021. Research did not reveal any evidence of depositor or creditor losses (Dunkley 2011; EC 2013; Pignal et al. 2011).

The original EC decision did not characterize the ARCO contribution to the capital injection as State Aid, however EC authorities investigated this characterization after learning about the guarantee against losses on equity stakes. In a January 2012 hearing before the Belgian House of Representatives, the Minister of Finance stated that he “had not been sure” of the guarantees due to fears that they would not be accepted by the EC. He called the setup of the guarantee a “political compromise” that had been necessary to save Dexia (EC 2013, 64). The investigation found that the ARCO guarantee from losses violated State Aid rules (Court of Justice of the European Union 2016; EC 2013).

The clients of DBB moved to the newly created Belfius upon their separation on October 20, 2011. Clients remaining within Dexia and DCL received the assurance of a credit guarantee which ensured Dexia’s ability to fund itself and cover its liabilities. The orderly resolution plan ended all new production and withdrew Dexia SA from markets while Dexia’s management pursued the gradual disposal of assets (Belfius 2012; Dexia 2013; EC 2013).

The municipal lending arm in France notably separated into a different structure in order to ensure continued lending to local French authorities. The resolution plan established a new credit institution to hold existing municipal lending, which was owned by the French state, the Caisse des Dépôts et Consignations (CDC) and the Postal Bank. The plan also created a joint venture (JV), which served as a banking transaction intermediary to provide new loans to French local authorities and public health establishments on behalf of the CDC and Postal Bank. The JV used Dexia Municipal Agency (DMA), now a subsidiary of the newly created credit institution, as a vehicle for refinancing new and existing loans (EC 2013; Pignal et al. 2011).

As part of the sale of FSA to Assured Guaranty, French and Belgian authorities provided a guarantee on the impaired asset portfolio, which was assessed at EUR 3.2 billion (See Key Design Decision No. 2, Part of a Package) (EC 2013).

In 2009, Dexia created the Legacy Portfolio Management Division (Legacy Division) which contained its portfolios in run off, the Financial Products portfolio not sold to Assured Guaranty, and non-core public sector loans. The portfolio held EUR 167.2 billion in assets which remained on the Group’s balance sheet to benefit from clearly identified and allocated funding. Pursuant to this goal, authorities required that all state-guaranteed funding be allocated to this portfolio. Dexia’s leadership intended to reduce this portfolio to EUR 80 billion by year-end 2014 as part of the overall restructuring goal to reduce the balance sheet by 35%. The rest of the bank became known as the core division (Dexia 2010a; Dexia 2011c).

The orderly resolution process charged Dexia’s management with the disposal of assets as the bank wound down (Dexia 2013). Appendix B shows the progress of Dexia’s asset disposal process from 2012 to 2022.

Dexia’s CEO and the chairman of the board both resigned following the announcement of the capital injection on September 30, 2008. Former Belgian Prime Minister Jean-Luc Dehaene took over as chairman, and former Sarkozy aide Pierre Mariani took over as CEO (Agence France Presse 2008; Dexia 2009).

Following the creation of the 2012 orderly resolution plan and the second capital injection, the sitting chairman of the board resigned in June 2012 and was immediately replaced. The CEO remained in place to finalize the disposal of DenizBank, the subsidiary in Turkey, before officially resigning in August 2012. The former top executive of Fortis Bank was brought in to manage the orderly resolution of Dexia, namely the disposal of assets that nobody wanted to buy (La Tribune 2012).

The restructuring and eventual resolution of Dexia involved coordination between the governments of Belgium, France, and Luxembourg. Throughout the initial restructuring process, Dexia divested subsidiaries in India, Mexico, Australia, Switzerland, Sweden, Slovenia, and Slovakia (Dexia 2010a; Dexia 2011c; Dexia 2012; Thomas 2012).

After continued depositor runs during the eurozone crisis, authorities from the Belgian, French, and Luxembourgish governments gathered to negotiate Dexia’s resolution (Thomas 2012). Figure 4 displays the participants in the October 2011 negotiations.

Media sources reported price tensions between the Belgian and French governments as well as between Belgium’s federal leaders and regional authorities. These points of contention largely revolved around the breakdown of the capital to be provided to Dexia. Both the French and Belgian authorities aimed to minimize their respective costs related to the resolution of Dexia. The strategic interests of the two differed as well, with the Belgian state looking to promote financial stability and the French looking to preserve a key source of municipal funding. Disagreements between the two states ultimately contributed to the choice of intervention strategy in 2008 (Financial Times 2011; Government of Belgium 2012; IMF 2014).

In its 2009 annual report, Dexia reported several restrictions that its leadership agreed to as part of the restructuring plan. Dexia agreed not to acquire more than 5% of the capital in a credit institution, investment company, or insurance company without receiving permission from the EC. The European Commission also required that Dexia’s leadership receive authorization from the EC before paying coupons on subordinated debt and hybrid capital instruments. This restriction applied to all issuances made before February 1, 2010, and was intended to last until December 31, 2011. Dexia also suspended dividends, and the EC dictated that Dexia may only pay dividends in the form of new common shares until December 31, 2011. All discretionary payments involving dividends or coupons were limited based on the criteria that after the payment(s), Dexia’s CT1 ratio adhered to or exceeded the following metrics (Dexia 2010a; EC 2010a):

• Core Tier 1 ratio of 10.6% as at December 31, 2010, decreasing each year to 10.2% as at December 31, 2014
• The sum of 12.5% of the weighted risks of the Legacy Division and 9.5% of the weighted risks of the other business lines

Upon commencing orderly resolution amid the eurozone crisis, Dexia accepted a different set of restrictions on its activities. Specifically, Dexia was required to comply with the EC in terms of its timetable for disposing assets, as well as adhering to a cap on financing and restrictions on handling of DCL’s sensitive loan portfolio (EC 2013).

Belfius committed to only carry out transactions necessary to carry out customer orders or to help Belfius perform liquidity or asset and liability management. Belgium agreed to an advertising ban and a ceiling on growth which limited the production of new loans by Belfius. Belfius also agreed to a ban on dividend payments and a ban on coupon payments for instruments issued by DBB/Belfius before October 20, 2011. Finally, Belfius agreed to not acquire any stake in any enterprises, excluding private equity business. As a check on moral hazard, Belfius committed to caps on wages and remuneration, limiting severances in particular to the legal minimum.  These conditions lasted until year-end 2014 (Duprey 2017; EC 2013).

The Eurozone Sovereign Debt Crisis of 2011 delivered a fatal shock to Dexia, forcing the bank to sell DBB/Belfius and DBIL in 2011 and enter orderly resolution in 2012. After an extended process of drafting the orderly resolution, the plan came into force on December 28, 2012. Dexia remains a bank in orderly resolution as of the writing of this case study, and the Group is 99.6% owned by the French and Belgian states. As of year-end 2022, Dexia has EUR 64.3 billion worth of assets on its balance sheet. The wind down of the balance sheet and value of equity are shown in Appendix B. In July 2023, Dexia applied for the withdrawal of its banking license to continue the orderly wind down as a nonbank (Dexia 2012; Dexia 2013; Dexia 2023a; Dexia 2023b; Dexia 2023c; EC 2013).

Following its sale on October 5, 2012, DBIL was renamed Banque Internationale à Luxembourg. The Luxembourg state owns 10% of BIL as of the writing of this case study (BIL 2023; Cleary Gottlieb 2012).

After separating from Dexia, Belfius operated as a nationalized bank. The bank remains owned by the Belgian state as of the writing of this case study. The government originally stated its intention to reprivatize Belfius, emphasizing its intention to stay local by seeking Belgian investment. SFPI stated its preparations for a partial IPO in its 2017 annual report, however they delayed a proposed plan to float 30% of Belfius shares in 2018. The 2018 SFPI annual report stated that the delay was due to volatility in financial markets at the start of the year. As of year-end 2022, Belfius is a healthy, systemically important bank with a book value of EUR 11.1 billion (Belfius 2023a; Belfius 2023b; Blenkinsop 2018; ECB 2023; SFPI 2019; Smith 2018).