BRUSSELS, Oct 10, (Agen-cies): Qatar’s royal family is stepping up its investment in the euro zone’s troubled banking sector with plans to buy private banking businesses from Franco-Belgium financial group Dexia and its Belgian rival KBC.
A Qatari investment group looking to take over Dexia’s Banque Internationale Luxembourg (BIL) belongs to members of the al-Thani royal family, who are also buying KBC’s private bank, Luxembourg’s finance minister Luc Frieden said on Monday.
KBC had earlier said Precision Capital, a Qatari-backed firm based in Luxembourg, had agreed to buy KBL, KBC’s private banking unit, for 1.05 billion euros ($1.42 billion). It said the Qatari investor had requested anonymity.
The al-Thani royal family, whose members also run key Qatari investment groups such as sovereign wealth fund the Qatar Investment Authority (QIA), has already invested in European banks in the past, including in UK bank Barclays in an emergency fundraising in late 2008.
Dexia agreed a rescue deal on Monday that will include the nationalisation of its Belgian banking division and the sale of BIL. Luxembourg is likely to take a minority stake in BIL, which specialises in wealth management, although the size of that investment was not yet agreed, Frieden told a news conference.
Dexia’s private banking business could be worth between 1 billion and 1.7 billion euros, Morgan Stanley analysts said last week.

Restructuring
The sale of KBL to Qatari investors is a central part of a restructuring plan required by the European Commission in return for 7 billion euros of state aid that KBC received to help it through the global financial crisis.
But the deal will leave the bank 300 million euros short of the price it last year agreed to sell the unit for, before that deal with Indian firm Hinduja Group fell through for regulatory reasons. It will still release about 700 million euros in capital for KBC, which is also planning to sell its majority stake in Poland’s Kredyt Bank and insurer Warta.
By 1145 GMT KBC’s shares were down 1.2 percent.
Qatar has invested in banks using various investment firms. Challenger, an investment vehicle of Sheikh Hamad bin Jassim bin Jabr al-Thani, paid 300 million pounds for a stake in Barclays in November 2008, alongside a bigger investment by Qatar Holding, part of QIA, in a 7 billion pound fundraising. Challenger invested at 153.3 pence per Barclays share, just below the current share price of 166p.
Meanwhile, Qatar’s royal family made a splash in Luxembourg on Monday with deals to buy two banks in a sign of the Gulf state’s desire to make the Grand Duchy an Islamic financial centre in Europe.
Hours after the French and Belgian governments announced the break-up of the Dexia banking group, Luxembourg announced that members of the Qatari monarchy decided to buy the troubled lender’s unit in the country, Dexia BIL.
Moments earlier, the Belgian bank KBC revealed that it was selling its Luxembourg unit, KBL, to the Qatari state investment fund Precision Capital for 1.05 billion euros ($1.41 billion).
Precision Capital is based in Luxembourg, which according to a study by global consultancy Ernst & Young has been attracting Arab firms running investments under Islamic Sharia laws.
The family of Grand Duke Henri has encouraged the development of Islamic finances in Luxembourg, a nation of half a million people.
Luxembourg’s banking secrecy laws turned the European Union state into a financial centre after World War II, attracting investors from around the world.
But outrage over tax havens erupted during the financial crisis in 2008, putting pressure on Luxembourg and other countries with similar banking laws to revamp their systems.
Luxembourg Finance Minister Luc Frieden welcomed Qatar’s acquisitions of Dexia BIL and KBL — deals that have to be approved by competition regulators.
“It is a good thing for the financial market because the two banks are complementary,” said Frieden, who visited Qatar in February.
One of Europe’s largest onshore private banking groups, KBL is affiliated to local banks across nine European nations, including Belgium, France, Germany, Luxembourg, Monaco, the Netherlands, Spain, Switzerland and Britain.

Transaction
The Indian conglomerate Hinduja Group had sought to buy KBL for 1.35 billion euros but the transaction was called off in March after Luxembourg’s financial regulator blocked the deal.
Frieden said Precision Capital wants to boost the bank by capitalising on links with the Middle East and Asia. Qatar’s prime minister, Sheikh Hamad bin Jassem al-Thani, is one of the fund’s board members.
As of June 30, the bank had assets under management of 47 billion euros and assets under custody of 38.2 billion euros.
Frieden disclosed few details on the Dexia BIL sale. He said it was being acquired by members of the royal family and that Luxembourg would take a minority stake costing 150 million euros.
The Royal Bank of Canada (RBC) will buy the 50 percent share it does not own in a joint venture, RBC Dexia Investor Services.
Dating back to the 19th century, Dexia BIL was offloaded as part of the dismantling of the Franco-Belgian Dexia banking group, which became the first victim of Europe’s sovereign debt crisis.
Dexia BIL, which employs 5,500 people worldwide including 3,000 in Luxembourg, controls one-third of the retail banking market in the duchy.
Belgium is paying 4.0 billion euros to nationalise the Belgian part of Dexia, while France wants to transform the French unit into a new bank focused on local communities.
Boasting that Luxembourg’s taxpayers were spared the need to rescue Dexia BIL, Frieden said his French and Belgian counterparts were “rather jealous” that his country had found a buyer.
Belgium’s caretaker prime minister Yves Leterme said the nationalization was necessary to insulate the Belgian retail bank from the risks of the wider group, Dexia SA. He said support from the state ensures that all of Dexia’s clients “can be sure and certain that their money is in full security.”
On top of the nationalization, the governments of Belgium, France and Luxembourg together will provide an additional 90 billion euros ($121 billion) in funding guarantees for the bank for up to 10 years.
Belgium will provide 60.5 percent of these guarantees, 36.5 percent will come from France and the remaining 3 percent from Luxembourg.
At the same time, Dexia’s board is in negotiations with French banks Caisse des Depots et Consignations and La Banque Postale to find a solution to the financing of French local authorities, in which Dexia plays an important role.
The announcement followed marathon negotiations between the three governments and the bank’s management.
Officials were worried that a collapse of the bank would exacerbate an already tight funding environment for banks in Europe, as analysts warn of a credit crunch similar to the one that followed the collapse of Lehman Brothers.
To avert such a scenario, European leaders are now pushing banks to shore up their capital cushions. German Chancellor Angela Merkel and French President Nicolas Sarkozy said Sunday that they were working on a coordinated plan to recapitalize European banks that would be completed by the end of the month. Greece, meanwhile, said Monday that it had to rescue local lender Proton Bank.
However, many governments across the continent are reluctant to put up more taxpayer money to save the financial sector as they are already facing rising debts.
In the case of Dexia, the Belgian and French governments were concerned that a bailout would threaten their credit rating and drive up interest rates on their bonds.
On Friday, Moody’s Investors Service placed Belgium’s Aa1 rating on review for a possible downgrade, due in part to the expected expense of guaranteeing that Dexia’s depositors will lose no money.
Belgian finance minister Didier Reynders said that the bailout would lift the country’s debt from around 97 percent of economic output to about 98 percent.
The French government, too, was under acute pressure to save Dexia as the bank is one of the country’s largest lenders to towns and cities.
France and Belgium already became part owners of the bank during a 6.4 billion euros bailout in 2008.
Last week Dexia announced it was in negotiations with a group of international investors interested in buying its Luxembourg subsidiary.
At a news conference Monday, the bank’s management blamed the renewed problems on the risks that were piled up before they took over in 2008.
“We realized very quickly that we found ourselves in front of a very difficult mission,” said Chairman Jean-Luc Dehaene. Efforts to strip down Dexia’s balance sheet and shift funding from short-term to long-term were taken quickly, but management did not have enough time to get the lender back on track before it was slapped hard by the government debt crisis, Dehaene added.
The chairman insisted that Dexia faces a crisis of liquidity, not solvency — meaning it is not bankrupt, but just doesn’t have the ready cash it needs in the short-term. That is why the bank managed to pass pan-European stress tests just this summer, Dehaene said.
Chief Executive Pierre Mariani added that a threat to downgrade the bank’s credit worthiness by rating agency Moody’s last Monday, exacerbated by rumors during the week, “put some pressure on group funding.”
Dexia’s stock remained suspended Monday morning following steep losses early last week.