Dexia will report its 1H12 earnings on 3 August, before market. We expect a net loss in excess of € 1bn, reflecting:
- The cost of guaranteed funding (c. € 300m);
- An impairment on the participation in Kommunalkredit Austria (€ 145m);
- Adjustments linked to the disposal of Dexia Municipal Agency (€ 102m)
- Losses related to the sale of Dexia Municipal Agency (c. € 1bn), though the sale hasn’t yet been approved by EC;
- Potential write-downs linked to the difference between the acquisition price of 40% of Dexia Sabadell (Sabadell wants to exercise its put option) and market value;
- Valuation losses & impairments?
Dexia’s current situation looks a lot like a standoff, where:
- EC wants the dismantling of the group with all of the losses to be born by the shareholders;
- EC blocks the sale of DEXMA which it wants to be liquidated;
- France who wants to merge CLF with Dexia Holding (hence transferring even more losses towards Belgium) or recapitalize it;
- Belgium who wants to re-negotiate with France the terms and burden sharing of the guarantees given to Dexia Group;
- Dexia Group who wants € 90bn of State guarantees (currently € 55bn temporary guarantee) at a reduced cost that would allow it to have a viable business model – but refused by EC
The current standoff andvery slow progress that is being made, makes it virtually impossible to gauge what the scope, business model (if any) and valuation could look like which is why we have a symbolic target of € 0.10.
We maintain our Reduce recommendation and € 0.10 target.