Nationalised Franco-Belgian lender Dexia posted a second year of heavy losses in 2012 after fire sales, higher funding costs and asset writedowns, and forecast another loss this year.
The company, once the world's largest municipal lender, is almost an irrelevance as an investment, with shares that are hardly traded valued at just 0.04 euros, compared with a May 2007 peak of 22.56 euros.
However, its results are important because France, Belgium and, to a lesser extent, Luxembourg are guaranteeing its borrowings and are threatened with losses that could derail their efforts to rein in their budget deficits.
Dexia, about 95 percent owned by France and Belgium and little more than a holding of bonds and loans, said its net loss last year was 2.9 billion euros ($3.88 billion), compared with a loss of 11.6 billion euros in 2011.
Chief Executive Karel De Boeck told a news conference that Dexia was aiming to cut the loss this year to 950 million euros. Fees for state guarantees would be lower and, with the business stripped down, financing costs should fall.
In 2012, Dexia took losses on its divestment of Turkey's DenizBank to Russia's Sberbank , private banking arm Banque Internationale a Luxembourg and its French public lending unit because the sales were at below book value.
It did book a modest positive after finalising the sale of its share in investor services joint venture RBC Dexia to RBC , albeit outweighed by the negative amount posted in 2011.
In 2012, Dexia also had to pay 743 million euros in fees to Belgium, France and Luxembourg to cover state guarantees on borrowing, which last totalled 66 billion euros according to central bank data.
The guarantees are capped at 85 billion euros, under a deal Dexia agreed in November with France and Belgium, which together pumped 5.5 billion euros into the group in a third bailout in four years.
Dexia has been steadily seeking to bring down its balance sheet, which totalled 651 billion euros at the end of 2008, almost twice the size of Belgium's annual economic output,
This figure had fallen to around 357 billion euros by the end of last year, 56 billion euros less than at the end of 2011.
Dexia's fourth-quarter loss was 475 million euros, compared with 1.225 billion euros in the third quarter. ($1 = 0.7479 euros)
(Reporting By Philip Blenkinsop; Editing by Erica Billingham)