Dexia, the Belgian-French financial services group, acted to bolster confidence in its US bond insurance division by providing a $5bn credit line to the subsidiary.
The move comes after a New York hedge fund last week revealed it was betting against Dexia??s FSA unit. The views had a knock-on effect on Dexia??s shares, which fell 14.6 per cent last week to their lowest level in five years. Dexia??s shares on Monday fell a further 4.85 per cent to ?11.39.
??To remove any doubt and to stop the speculation on FSA we decided to act fast,? said Xavier de Walque, Dexia??s chief financial officer. ??It is an amount we consider sufficient to stop speculation. Our commitment is very concrete.?
The stand-by credit will last for five years initially, and will be unsecured by collateral. It is the first such explicit back-up credit made available by Dexia to its bond insurance subsidiary.
Last week, hedge fund manager Bill Ackman revealed that his $6bn Pershing Square Capital Management fund was betting against FSA. Mr Ackman has successfully bet on the declines in the share prices of other bond insurers, such as Ambac and MBIA. Mr Ackman has been a critic of bond insurers, or monolines, for many years, but his bets have only started to pay off in the past 12 months.
