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The Not-So Done Deal with Dexia
It seems the bailout of Dexia Group, the Belgian-French financial institution, could have some "issues".
There are reports hitting the newswires that Belgium may not be able to honor its part of the bailout.
Recall that the original bailout deal, structured back on October 10th, called for Dexia to receive €90 billion from France, Belgium and Luxembourg.
Belgium was to contribute about 65% of this amount: roughly €60 billion. As I wrote at the time, that amount represents approximately 17% of Belgium's GDP.
If the U.S. spent a similar amount on a bank bailout the sum would total roughly $2.5 trillion. That's on one bank! Imagine the U.S. public's reaction to a bailout of that size.
The more general concern regarding this issue is that an unknown number (but I would guess more than 1) of additional European banks may also be in trouble.
Remember that under Basel guidelines the Euro-zone banks hold sovereign debt at face value and thus may not be in quite as strong a position as would seem at first glance. Further, Dexia passed the EU's "Stress Test" conducted earlier in 2011 with flying colors; and then collapsed a few months later.
Fitch has just issued a report that the increased cost of the Dexia bailout could put pressure on France's Tripe-A credit rating. Super.Here's hoping you have a great Thanksgiving!
Curtis Bergquist
Co-Manager: Daily Decision-PRO
P.S. Here's an unabashed pitch for Daily Decision-PRO Service - It's beaten the market handily for five months running now.
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