The debate over compensating Arco shareholders keeps getting tangled in emotion, but strip that away and it is simply about honouring a deal struck in 2008, when the Belgian State offered 800,000 cooperative members a guarantee to secure the first Dexia rescue. With Belfius now worth around €10 billion and €3.7 billion in dividends already drawn, living up to that promise is both fair and legally correct.
Compensating Arco shareholders for their losses often runs into emotional or philosophical objections. Why should the taxpayer foot the bill for losses caused by the Christian labour movement? "Let them pay for it themselves; this isn't a matter for the taxpayer" is a common refrain.
Yet this is about honouring commitments made earlier; a quid pro quo, a deal struck in 2008. The only reason we're still debating this today is because the State refuses to live up to its side of the bargain.
The State's commitment didn't come about because of political pressure, or because the Arco shareholders belonged to a social movement or formed the electorate of a particular political party. The only reason this commitment was made is that the Belgian State needed the support of Arco's cooperative members for the first bailout of Dexia. To secure that support and prevent Arco shareholders from withdrawing their savings in the midst of the financial crisis, a state guarantee had to be provided.
The State gambled with the savings of 800,000 small investors. That gamble turned out badly. When you lose at the casino, you have to pay for your losses. Yet in this case, the State has consistently refused to do so.
Let's go back in time. On September 30, 2008, in the middle of the financial crisis, the Dexia group had to be rescued. Various Belgian, French, and Luxembourg authorities took part in the capital increase. The Belgian State, however, demanded that Arco Group, the cooperative holding company above Dexia Bank, also subscribe to the capital increase.
Arco Group, however, didn't have the money to subscribe. So a construction was devised whereby Dexia Bank, itself a beneficiary of the capital increase, would grant a loan to Arco Group, so that with the borrowed money (plus freshly raised funds from Arco's cooperative members) it could participate in the capital increase for €350m. From a liquidity standpoint, this "robbing Peter to pay Paul" operation made no sense whatsoever for Dexia Bank, but it certainly looked good on the financial markets that existing shareholders were participating in the capital increase.
To protect itself as the lender in this operation, Dexia Bank demanded a pledge over all of Arco Group's remaining assets. So if things went wrong, Arco Group stood to lose everything; not just the Dexia shares, but all of Arco Group's other assets were put at risk as well. Dexia Bank thus protected itself, and indeed ran away with the furniture once things actually did go wrong in 2011.
Subscribing with borrowed money, in the middle of a financial crisis, to new shares of a bank under financial stress, while pledging all your assets in the process… that was obviously at odds with Arco Group's cooperative philosophy. And it ran completely counter to the "safe" and "risk-free" nature of an investment in Arco, which Arco Group always touted when attracting savings from its cooperative shareholders.
By forcing Arco to take on such irresponsible risks, the Belgian government feared that the cooperative shareholders might withdraw from Arco's capital. Under the company's statutes, they could indeed do so during the first half of each financial year, at the nominal value of their investment, including capitalised dividends. There was also the danger that they would then immediately withdraw their deposits from Dexia Bank. Had that risk materialised, it would have completely undermined Dexia's rescue operation.
That, and only that, is why the Belgian State decided at the time that it was necessary to grant the 800,000 private Arco shareholders a state guarantee to protect their invested capital. And so it happened. In the months and years following the promise of the state guarantee (between September 2008 and December 2011), Arco was able to reassure its own private shareholders about the value of their investment. According to Arco, this value remained fully intact, even when the annual accounts showed that, due to Dexia's losses, not much of that value actually remained. After all, there was a state guarantee covering the full value of their investment. Arco's cooperative shareholders sat tight, trusting in the guarantee given by the Belgian State.
It later emerged from statements by ministers that they knew the promised state guarantee was in fact invalid. They had indeed been warned by the National Bank and the Council of State about the possible invalidity of the state guarantee. But of course, these doubts were never shared with Arco's cooperative members.
This history doesn't get enough attention in the current debate about compensating Arco's cooperative shareholders. In 2008, the private savers were sorely needed for the success of Dexia's rescue operation. Their support was seen as essential. That's why a state guarantee was offered. It wasn't given out of sympathy, nor because Arco Group belonged to a social movement close to the then Prime Minister.
Arco's participation in Dexia's 2008 capital increase was a pure fiction, set up by the Belgian State with the support of Dexia Bank (now Belfius). This scheme was only possible thanks to the state guarantee that was granted. Everything formed a single whole. Remove one element, and the entire construction falls apart. The savings of 800,000 cooperative members were swept up into this scheme. The State gambled and made a deal: "If we lose, we'll cover the consequences". But the State never honoured its side of the deal.
Belfius Bank and the State managed to save assets for themselves, and the State is entitled to them, given the significant financial risks it took on. Over the past years, the State has already received €3.7 billion in dividends from Belfius Bank. Today, the Bank's value is estimated at €10 billion. But it is simply fair, morally important, and legally correct that the promises made to Arco's shareholders are now honoured. Let's set aside all emotional and philosophical considerations.
This is about carrying out a deal from the past: nothing more, nothing less. If the State wants to show that it is a reliable partner for the future, it must first honour its commitments from the past.
