Dexia loaned €1.5bn to buy own shares - reports

Dexia, the bank bailed out by the French, Belgian and Luxembourg governments, loaned €1.5bn to two of its investors who then used the cash to buy shares in the company, it has been claimed.

The move - illegal in most jurisdictions and banned in the EU, but which does not break existing Belgian laws - artificially increased Dexia's capital levels and skewed outsiders' views of the bank's financial strength, according to the FT. A loan of €1.2bn was issued to Holding Communal and €275m to Arco, two of the bank's largest institutional shareholders, to participate in Dexia capital increases in 2006 and 2008. The two parties jointly-owned 35% of the company and are still represented on the board. The loans came to light following the government rescue of the bank earlier thi...