Date of Release: 2008-10-01

Dexia Group

DBRS Downgrades Dexia Entities to AA; Places All Ratings Under Review with Negative Implications

DBRS has today downgraded all the long-term ratings for the entities of the Dexia Group (Dexia or the Group), including the Senior Long-Term Debt & Deposits ratings for the Group’s three main operating banks, Dexia Bank Belgium, Dexia Crédit Local and Dexia Banque Internationale à Luxembourg, to AA from AA (high). All the long-term and short-term ratings have been placed Under Review with Negative Implications.

DBRS’s rating action follows Dexia’s announcement that Belgian, French and Luxemburg government entities and existing shareholders have agreed to inject a combined EUR 6.376 billion of capital into the Group. EUR 6 billion of capital is provided through the form of equity, while EUR 376 million is provided in the form of convertible bonds. The capital injection should allow Dexia to maintain solid capitalisation as it faces mark-to-market losses on securities, deteriorating creditworthiness of some banking counterparties, further impairments on equity portfolios and continued deterioration in the financial products portfolios of Dexia’s bond insurance subsidiary, Financial Security Assurance Inc. (FSA). Dexia’s board has accepted the resignation of the Group’s chairman and of its chief executive officer, both of whom will continue to oversee daily operations until successors are appointed.

The downgrade of all long-term ratings and the placement of the ratings Under Review with Negative Implications reflect DBRS’s view that Dexia’s financial profile has been weakened by the unprecedented disruption in financial markets. DBRS expects Dexia’s earnings to remain pressured as the Group continues to be exposed to the persistent turmoil in global financial markets.

At the same time, DBRS views positively the support the Group is receiving. The capital provided by the government entities and existing shareholders confirms the expectation of DBRS that systemic support is available to Dexia. Dexia’s strong franchise as a leading lender to public-sector institutions with deep relationships to municipalities, states and other government entities across Europe also supports the view of DBRS that Dexia is likely to receive support as needed. DBRS notes further that Dexia has significantly reduced its risk exposure to FSA’s Financial Products asset management subsidiary by converting a USD 5 billion unsecured liquidity line to this entity into a secured repo line and by limiting future capital injections into FSA’s Financial Products asset management subsidiary to USD 500 million.

DBRS’s review will focus closely on how Dexia addresses its numerous challenges and its ability to restore investor confidence. At the same time, DBRS will monitor the impact of the aforementioned events on the Group’s liquidity and the potential adverse impact on Dexia’s franchise strength. If the government entities limit their support to exclude certain parts of the Group’s capital structure or certain operating units, then multiple-notch downgrades of such instruments or units are possible. Conversely, a continuation of the strong capital support Dexia is receiving could stabilize the Group’s ratings.

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