Dexia posts 431 million deficit in first quarter

The Dexia Holding, which is the bad bank of the former Dexia Bank, has announced the first financial results of the year. The loss does not come as a surprise, and insiders point to the fact that the deficit is smaller than at previous quarters. However, the bad bank is causing Belgian leaders headaches, as the Belgian government has given guarantees for possible future losses.

The troubled Dexia Bank Belgium was nationalised last year, with the healthy parts and the toxic parts being separated. The healthy bank became Belfius, while the bad bank was incorporated in the Dexia Holding.

In the first quarter, the bad bank accumulated a loss of 431 million euros. "This does not come as a real surprise", financial expert Pascal Paepen told the VRT. "The deficit is much smaller than it used to be." Over the whole of last year, Dexia Holding posted a loss of 11 billion euros.

Pascal Paepen thinks that the bad bank will continue to make losses. However, the Holding is running of capital, which means that if the deficit keeps on growing, the Belgian government will have to raise the capital. This could put a heavy burden on the federal government's budget plans in times of austerity and financial cuts.

The Belgian government signed a guarantee agreement with the French state to cover the bad bank's liabilities. This guarantee could go up to 54 billion euros in the worst case scenario. In other words, the bad bank could threaten Belgium's financial health in the long run.