|Dexia, a top 3 lender in Belgium, appears headed for restructuring.|
NEW YORK ( TheStreet)-- Dexia, the third-largest lender in Belgium and Luxembourg, may soon require a bailout from the French and Belgian governments.
Dexia held an emergency board meeting on Monday following a downgrade by Moody's Investors Service and produced a press release that was "disappointingly short on detail," according to a report published Monday by research firm Creditsights. Citing the group's "in-depth rebuilding of its financial structure," since it received a government bailout in 2008, Dexia's press release states that a decision to "accelerate its restructuring plan," in May 2011 has proven insufficient since "in the current environment, the size of the non-strategic asset portfolio (so-called legacy) impacts the Group structurally despite the good credit quality of its assets." Dexia, which is a major lender to local governments in the U.S. and around the world, received government a bailout in 2008 and has made some progress in shoring up its balance sheet, but is still heavily exposed to countries in so so-called periphery of the Eurozone: Greece, Italy, Portugal, Ireland and Spain. It has EUR21 billion in exposure to debt issued by those countries, according to the Creditsights report. Creditsights speculates that separating into a good bank/bad bank structure, to isolate a distressed portfolio of EUR95 in bonds purchased before the 2008 crisis may be one option, possibly with government support. Should Dexia require a bailout, it appears likely it would get one. Belgian finance minister Didier Reynders said in a meeting of European finance ministers on Monday that "the governments of France and Belgium are behind their banks, whether it's Dexia or another one," according to a report in The Wall Street Journal. Creditsights analysts stress that time is running short to avoid such an outcome. "Dexia is being optimistic if it thinks the market will give it time to find a solution, and intervention from the French and Belgian governments may have to come sooner rather than later," Creditsights analysts write. -- Written by Dan Freed in New York.