€1.5 Billion Dexia Loans Used To Buy Shares In ... Dexia

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Dexia, the stricken Franco-Belgian lender that has been at the centre of recent market turmoil, loaned €1.5bn of fresh capital to its two largest institutional shareholders which then used the cash to buy Dexia shares before 2008, the Financial Times has learnt. The unorthodox funding move, which raised the Belgian regulators’ concerns at the time, amounted to Dexia borrowing money from itself to finance a capital increase. This is illegal in most jurisdictions and is now banned in the European Union, but did not break Belgium’s existing laws. The arrangement artificially increased Dexia’s capital levels, which are closely watched by regulators and investors to gauge a lender’s financial strength. The loans came to light after Dexia was earlier this month forced to apply for its second bail-out in three years, the first bank to require state aid as a result of the eurozone crisis. Read more. (Subscription required.)