Dexia of Cards | FT Alphaville

Dexia of Cards

As long as you’re not a shareholder, the Dexia website is a hoot – at least until it is taken down and replaced by the internet equivalent of martial music. Its slogan is right up there with the likes of “global world” or “you can bank on us”. “Together to the essence” may have a meaning, but it eludes me. “Together to the end” would be more appropriate as the French and Belgian governments prepare to carve up the corpse and take the parts home for a decent burial.

Except that the phrase “Belgian government” is almost as empty of meaning, since, strictly speaking, there isn’t one. Last year’s election result was a fragmentation bomb for Belgium’s politicians, and they are making do with a “caretaker” in the previous prime minister Yves Leterme. He’s signalled that he’s off to become No2 at the OECD before the end of the year. Stiffing the Belgian taxpayer with the follies of Toxia could turn out to be his last significant act.

Dexia was almost the first bank to signal distress in the banking crisis, but its executives have proved themselves slow learners in the three years since then. Their bank has been caught holding ¢21bn of Greek, Italian and other doubtful sovereign state paper, which rather begs the question of why a Belgian bank which “focuses on Retail and Commercial Banking in Europe, mainly Belgium, Luxembourg and Turkey and on Public and Wholesale Banking” should be buying Greek debt in the first place. Perhaps it decided the “risk-free” paper was curiously cheap, and all sovereign eurozone debt is much the same, isn’t it?

If Dexia’s executives were slow on the uptake, then the European Banking Authority makes them look like Brain of Belgium. In the “stress test” just a few weeks ago, Dexia passed with flying colours, showing twice as much capital as needed. Desperately trying to keep a straight face Michel Barnier, the internal market European Commissioner, told the FT: “The situation has worsened since the stress tests.” Well, yes. Looking ahead to see what might get worse is rather the point of a stress test. Until they grasp this in Brussels, share prices are the best guide to the real financial state of a bank. Dexia’s price was already signalling distress, and it halved after the test in July, before the shares were suspended on Thursday. They are unlikely to return.

*Incidentally, Belgium has already become the first central bank in the eurozone to default. In common with other members, the central bank has pledged to convert legacy currency notes into euros at the official rate, without charge. However, there is no point sending it notes smaller than 100 francs. They’ll come back with the Belgian equivalent of “This is loose change. Don’t bother us with it.”

Oh no, Tesco

A sorry little blot appeared on Tesco’s escutcheon this week. The grocers felt moved to provide a further £57m for mis-selling PPI policies, the latest example of insurance that’s always there except when you need it. In the context of the big banks, Tesco’s provision – now up to £92m – is trivial, but nevertheless it’s a huge disappointment to those of us who had high hopes for Tesco’s revolutionary idea of banking which puts the customer first.

PPI was a scam. It was hugely profitable for the banks because many borrowers who were persuaded to buy it never had a hope of making a successful claim. PPI shows why the banks are held in such low regard by those forced to use them; Tesco was, and is, far better regarded by the paying customers. Other things being equal, we’d have more confidence that we weren’t being ripped off than, say, with Lloyds or Barclays.

Tesco has bought out its joint venture partner, RBS, and still plans to offer “a full-service retail bank providing a comprehensive range of simple, good value financial products”, including mortgages and current accounts, next year. Well, we’ll see. The pity is that Tesco didn’t spot that PPI was neither simple nor good value in the first place.

Grid taps private investor power

It seems that (reasonably) serious money can be raised from private investors after all, provided the offer is attractive enough. With impeccable timing, National Grid offered an index-linked bond paying 1.25 per cent plus RPI inflation just after National Savings had withdrawn its own version. The Grid bond pulled in £260m, and us buyers could contemplate a very modest instant profit when trading started on Thursday. By Friday the bond stood at £101.55. The 30p spread between bid and offered implies useful liquidity, too.

Compared to gilts, it still looks good value. Index-linkers of similar dates do not even return your money, adjusted for inflation. The risk is higher, since the Grid’s guarantee is a lot less valuable than that of HMG, and political interference in the company’s vast capital investment programme is inevitable. Moreover, the tax treatment is so punitive that there is no point in a taxpayer buying it except in an ISA or SIPP, which escape income tax and CGT. All things considered, £260m is quite a result, and should open the market for other big corporates to tap real investors direct.