Deal of the Month: restructuring of Dexia Bank

johan ysewyn

Johan Ysewyn, competition partner, Clifford Chance

Dexia Bank was one of the early casualties of the credit crunch and one of the most difficult distressed banks cases.

Dexia had become the ward of no less than three governments: Belgium, France and Luxembourg. The most recent aid package, including a €5.5bn (£4.8bn) capital injection and financial guarantees for €85bn, saw a team of Clifford Chance competition lawyers in Brussels negotiating, on behalf of the Belgian gov­ernment, for more than a year with the European Commission. 

After more than a year of negotiations with the European Commission, our team was able to secure the clearance for the state aid package granted to Dexia. The successful closure of this procedure allowed the orderly resolution plan of the residual Dexia group, the sale of subsidiary Dexia Municipal Agency (DMA) and the restructuring of Belfius (formerly Dexia Banque Belgium).

The case was extremely challenging for four main reasons.

First, this was the first state aid case resulting from the sovereign debt crisis involving several member states. The interplay between the three governments and their respective supervisory authorities, and the Commission services, each with their own concerns, made negotiations complex.

Second, the investigation lasted more than 16 months. This posed challenges for the day-to-day operations of the bank, requiring interventions on the part of the governments and the Commission.

Third, the resolution involved a uniquely complex mix of remedies including nationalisation (of Belfius), divestments (of Dexia Asset Management, Crediop, Denizbank), the establishment of a development bank (through DMA in France), the orderly resolution of the residual group and a set of behavioural commitments.

Finally, in addition to passing the state aid control procedures, a number of merger control notifications had to be filed, both at the Belgian and EU levels. Given the urgency and the associated risk to the financial stability of member states, these had to be accompanied by requests for derogations from the implementation prohibition.

The outcome shows that the Commission will not shy away from imposing severe measures on banks that, after state aid injections in the first financial crisis, cannot remain viable without further state support. The Commission requires those banks, at a minimum, to refocus further on their core activities and, at the extreme, can require them to go into a run-off scenario.

The legal line-up:

For Dexia: Cleary Gottlieb Steen & Hamilton partners Laurent Legein, Laurent Ruzette, Amélie Champsaur, François-Charles Laprévote and Marie-Laurence Tibi

For the French government: Bredin Prat (Patrick Dziewolski)

For the Belgian government: Herinckx SPRL (Yves Herinckx), Clifford Chance (Johan Ysewyn, Philippe Hamer)

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