Dexia, the Belgian-French financial services group, has agreed to sell the insurance business of its subsidiary FSA to Assured Guaranty.

Under the terms of the sale, Dexia will receive $361 million from Assured Guaranty, along with $44.6 million in new Assured shares.  Based on the 13 November closing price of Assured Guaranty ($8.10 a share), the total consideration amounts to $722 million.  Dexia will emerge a 24.7 per cent shareholder of Assured Guaranty, the New York-listed bond insurer.    

The sale is part of Dexia’s drive to reduce costs and refocus on its core businesses in public, retail and commercial banking, in response to a third quarter net loss of $1,956 million.

Pierre Mariani, chief executive and chairman of Dexia’s management board, said: “Amidst an unprecedented financial crisis, we need to tightly manage risks and restore sound business and financial discipline.”

The deal with Assured does not include FSA’s $16.5 billion financial products portfolio, which contains securities linked to sub-prime mortgages.  

Dexia said its exposure would be contained through a guarantee of the assets managed by FSA Asset Management provided by the French and Belgian governments.  Under the agreement, Dexia would cover the first loss of $3.1 billion above the amount of $1.4 billion already reserved as of the end of September.

The firm has also appointed a new management board, reducing the number of positions from ten to five, in a move to “simplify and strengthen the group executive management team.”