DEXIA: Results od 3Q11 hopefully provides further clarifications

Dexia (0,49 EUR, 1,86%) has stated that it does not intend to modify the timetable for the publication of its quarterly results, which was scheduled for 9 November. The communication of the results of 3Q11 will nonetheless be in the form of an “interim statement” and not that of a financial report, considering the in-depth restructuring throughout the Group.

The sale of Dexia Bank Belgium should see the DBB earnings been stripped out of the core division (PWB, RCB, AMS, Group Center) and move to run-off whereas at the same time Dexia reported that the sale (based on 30 June figures) would trigger a realised loss of c. € 3.8bn. The sale of DBB would reduce run-off commitments by € 19bn, the negative AFS reserve by € 2.2bn and the exposure to PIIGS government bonds by € 9bn.

Caisse des Dépôts and Banque Postale will start in France with a Greenfield competitor in the field of the financing of local authorities. To that end they will acquire 65% of Dexia Municipal Agency, the AAA-rated covered bond issuer of Dexia Crédit Local de France. The c. € 680m capital loss on the disposal suggests that CDC and BP (446,8 GBp, 0,63%) are buying Dexia CLF’s crown jewel at a deep discount and receive a guarantee from Dexia on € 10bn of structured loans to French local authorities and an indemnification against losses in excess of10bps on all outstanding loans. Dexia would benefit from a counter guarantee from the French government on this same portfolio of structured loans up to 70% of losses over and above € 500m (stop-loss).

The operation will force Dexia CLF to become a run-off entity (including Crédiop and Sabadell) with some minor activities in insurance (via Sofaxis), real estate services (via Esterimmo), automobile leasing (via Dexia LDD) and personal services (Domiserve).
The operation would (based on 30 June figures) reduce Dexia Group’s balance sheet by about € 65bn and its liquidity requirements by c. € 10bn.

Our View:
Making forecasts for the 3Q11 results is not meaningful in our view. Clarifications on the scope of the group and more specific on how much of the U/R losses (AFS reserves) and Greek exposure have left the scope, would be welcome.
The sale of Dexia Bank Belgium and the other divestments thereafter will have a very significant impact on Dexia’s P&L (realised losses, U/R in equity transferred through P&L,...). As a consequence our forecasts are invalidated and should be disregarded by investors for the time being.

Conclusion:
We maintain our Hold rating with a target of € 1.0.