BRUSSELS, June 11 (Reuters) - The head of Dexia expressed guarded optimism on Thursday about the Belgian-French financial service group's performance in the second quarter.
"I am still very cautious but we are, up to now, on the same kind of trend as in the first quarter, but we are not yet at the end of the quarter," chief executive Pierre Mariani told a banking seminar in Paris.
"Overall the news of the second quarter is pretty positive. I'm not too confident. I have still refused to give a forecast for the entire year. Markets are still very volatile," he said.
Dexia returned to profit, of 251 million euros ($352.2 million), in the first quarter after recording large losses in the third and fourth quarters of 2008. Its total net loss last year was 3.3 billion euros.
Dexia, the world's largest municipal lender, was forced to seek a state bailout at the end of September in part because it relied on short-term funding to cover longer-term loans.
Mariani said Dexia aimed to cut its "liquidity gap" by 100 billion euros and had so far met 65 percent of this objective, via state guarantees for short-term funds and more than 29 billion euros of long-term issues in the year to date, with a reopening of the covered bond market.
"In terms of funding not everything is completely solved," the Dexia chief said, adding Dexia would probably be able to fund itself without any state guarantees by the end of 2010.
It has Belgian and French state guarantees on its uncovered borrowing of up to 150 billion euros until October 2009.
Dexia announced on Wednesday that it expected to close the sale of its U.S. insurer Financial Security Assurance Holdings, Ltd (FSA) to Assured Guaranty on July 1.
Dexia could end up with a stake in Assured of as much as 24.7 percent, but Mariani said the stake was likely to end up being much lower.
"I anticipate... we will exercise the option to reduce the equity stake to the minimum and that will probably be in the lower part of the equity stake, probably around 12 percent," he said.
Dexia will nevertheless retain FSA's $16.5 billion Financial Products portfolio, for which Belgium and France would cover losses over $4.5 billion in exchange for Dexia shares.
"I am still convinced that we don't expect to reach the threshold," Mariani said.
He noted that Dexia had already provisioned more than $2 billion for potential losses, but actual losses to date had only amounted to $12 million.
"And we don't see any major deterioration of the credit risk of this portfolio," Mariani said. ($1=.7126 euros) (Reporting by Philip Blenkinsop; editing by Mike Nesbit)