10/4/11

Will new banking crisis drive up P3 costs?


Dexia, one of Europe's larger banks, is also one of the larger backers of public private partnerships. The Guardian reports it has been involved in about $9.36 billion worth of P3 projects in Britain. Dexia has also been involved in three P3s in British Columbia, two hospitals and a bridge.

As of today, the bank has fallen on hard times, connected to fears about its potential loses in Greece. So it is now on the verge of receiving a bail out from (who else?) the public.


This is the second time around for Dexia in just three years: the bank had to be bailed out by France and Belgium during the 2008 banking crisis with $6.92 billion of taxpayers' money.

( Apparently these guys truly do believe in PUBLIC private partnerships.)

Dexia may be just the first to go if there is a new round of bank crises. If so, more P3 financiers may need a public bailout before it is over.

“Dexia is by no means alone in terms of being at risk here,” said Simon Maughan, head of sales and distribution at MF Global Ltd. in London. “There are plenty of other banks out there that have grown their assets way in excess of their deposit base like Dexia. That makes them massively exposed."
Less than three months ago Dexia got a clean bill of health in European Union "stress tests".

The P3 model (which relies on private financing of infrastructure projects) is the model Ontario hopes to use to rebuild its hospitals.

OCHU/CUPE released a report following the 2008 banking crisis detailing how the financial problems were driving up the cost of the P3 financing. There was no response from the Ontario government.

The shares for European lenders are down 36% this year in light of the renewed debt crisis. No one is sure the banks can fund themselves, it seems. The latest banking problems introduce even more uncertainty about the banks. And that may drive up P3 financing costs further.

We'll see if the government responds this time.


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