Wall Street Journal
October 11, 2011
Europe's troubled financial sector showed further strains Monday as the sovereign-debt crisis claimed its first banking victim and banks in Austria and Greece showed signs of distress, increasing pressure on euro-zone governments to come up with a plan to restore confidence in their lenders.
Early Monday, the board of Franco-Belgian bank Dexia SA approved a rescue plan drawn up over the weekend by the governments of France, Belgium and Luxembourg. Under the plan, the bank's Belgian unit will be nationalized and its other divisions sold. Dexia will receive up to €90 billion ($120 billion) in taxpayer guarantees, mainly from Belgium, to shore up its funding.
Meanwhile, Austrian bank Erste Group issued a surprising profit warning Monday, saying it expects a net loss of nearly €1 billion this year instead of a solid net profit, because of its exposure to the debts of struggling euro-zone governments as well as write-downs at its units in Hungary and Romania.
Erste's move raises the possibility other euro-zone banks might decide to recognize deeper losses on their sovereign-debt exposure as they report earnings in coming weeks.
Greek bank shares fell sharply Monday as investors worried a further bailout of the country means lenders will face bigger write-downs on their holdings of government debt. But elsewhere in Europe, markets jumped, boosted by hope European leaders can piece together a bailout package for Greece and limit fallout for banks from the region's financial crisis.
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