The European Commission said that it had launched an in-depth investigation into the restructuring of Belgian-French financial group Dexia.
The Commission said in a statement it intended to make sure the restructuring plan would guarantee the long-term viability of the group, hit hard by the financial crisis.
But the executive arm of the 27-nation European Union also authorized guarantees worth €16.9 billion ($21.75 billion) from the Belgian and French governments to aid in the sale of FSA, the bank's US subsidiary.
The Commission said it had the obligation to verify that all aid given to Dexia, the world's largest municipal lender, would be accompanied by plans to solve the problems that led the bank into crisis.
Dexia received a €6.4 billion capital injection at the end of September from Belgium, France, Luxembourg and key shareholders and then secured guarantees of up to €150 billion for its borrowings from the three states.
This was approved in November by the Commission, which also said it had authorized a guarantee from Belgium and France for a portfolio of assets worth $16.9 billion. Dexia has also announced plans for a major overhaul of its structure.
Dexia has agreed to sell the insurance activities of its US bond insurer Financial Security Assurance (FSA) to Assured Guaranty and refocus on core markets France, Belgium, Luxembourg, Italy, Turkey, Slovakia and Iberia.
It has plans to save €600 million, some 15% of costs, over the next three years and has already announced that 900 jobs will go this year and is steadily pulling out of locations such as India and Mexico.
Dexia said it had no immediate comment on the Commission's decision to open the in-depth probe.
Competition Commissioner Neelie Kroes said in the statement that the Commission needed to check that the large amount of aid for Dexia was accompanied by realistic projects to address its problems.
“We cannot reach a favorable conclusion at this stage on the plans submitted to us. We therefore have to study them in depth. However, the Commission considers that the guarantee needed for the sale of FSA may be authorized immediately,” she said. (Reuters)