Page last updated at 10:04 GMT, Tuesday, 30 September 2008 11:04 UK

Second Belgian bank gets bail-out

A branch of Dexia in the centre of Brussels
Dexia has been hit by the US sub-prime mortgage crisis

Dexia has become the latest European bank to be bailed out as the deepening credit crisis shakes the banks sector.

After all-night talks the Belgian, French and Luxembourg governments said they would put in 6.4bn euros ($9bn; 5bn) to keep it afloat.

Shares in the Belgian-French bank fell 30% on Monday before being suspended on Tuesday as the bail-out was announced.

It is the second bank rescue in days by Belgium and its neighbours. On Sunday Fortis bank was partly nationalised.

This latest move by European governments to shore up another bank under pressure came as global stock markets plunged after the US House of Representatives rejected the White House's planned $700bn bail-out package.

'Crisis situation'

Dexia is the one of the world's largest lenders to local governments, but has run up significant losses in its US operations.

We took concrete and correct decisions to reinforce Dexia's health
Yves Leterme
Belgian prime minister

In a statement the French government said the rescue was necessary to "guarantee continuity of funding for local authorities".

The Belgian government and Belgian shareholders will invest 3bn euros, the French government will also invest 3bn euros via its state investment arm, while Luxembourg will put in just under 400m euros.

Yves Leterme, the Belgian prime minister said: "Given the crisis situation around the Dexia group we took concrete and correct decisions to reinforce Dexia's health so that the group can face the events playing out in financial markets."

Borrowing problems

Last month Dexia announced it was overhauling its loss-making US bond insurance unit, Financial Security Assistance - which made a loss of $330m in the second quarter of this year because of the sub-prime housing crisis.

The group has also been hit by the collapse of the US investment bank Lehman Brothers.

Dexia - like its rival Fortis which was partly nationalised in a rescue at the weekend - has been finding it hard to borrow the money it needs, because banks have become less willing to lend to each other.

Dexia was created in 1996 from the merger of two banks which specialised in local government funding in Europe - Credit Communal de Belgique and Credit Local de France.

It was one of the first cross-border mergers in the European banking sector and the bank currently has 5.5 million customers in Belgium, Luxembourg, Slovakia and Turkey.

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