Belgian-French financial services group Dexia will sell off its troubled US bond insurance subsidiary and launch a cost-saving drive after a heavy third-quarter loss.

The world's largest municipal lender, the recipient of a €6.4 billion ($8 billion) public bailout in September, said on Friday it would sell the insurance business of Financial Security Assurance (FSA) to US peer Assured Guaranty, the bond insurer backed by billionaire Wilbur Ross. See: After Fortis, Benelux and France bail out Dexia with €6.4-billion cash infusion

The sale doesn't include FSA's asset-management business, which has a $16.5 billion portfolio of risky debt. Instead, Dexia will cover the first $3.1 billion of losses on that portfolio, on top of $1.4 billion already covered by provisions. Above that level, any losses will be met by the Belgian and French states in return for a further equity stake or share of group profits.

Assured Guaranty will pay a 50-50 mix of cash and shares for the rest of the FSA business, which includes a $425 billion insurance portfolio. Following the deal, Dexia will hold a nearly 25 per cent stake in Assured Guaranty.

Dexia said it would refocus on its core businesses in public, retail and commercial banking in Belgium, Luxembourg, Turkey and Slovakia, and launched a 15 per cent cost savings plan, with €300 million of savings already identified.

"This guarantee, together with the previous state guarantee on Dexia wholesale funding and the recent capital injection by Dexia's core shareholders, enables Dexia to face with confidence this major global financial crisis," Dexia chairman Jean-Luc Dehaene said.

"We need to tightly manage risks and restore sound business and financial discipline," said Pierre Mariani, Dexia's recently appointed CEO. He replaced Axel Miller last month.

"We must now quickly focus on our core client franchises, reduce group's risk profile and remove unnecessary costs," he added.

Dexia's net loss in the July-Sept period was €1.544 billion ($1.93 billion), at the top end of market expectations, due to a negative impact from the financial crisis of €2.191 billion. Excluding this, the net income was stable.

The net loss was much higher than the €500 million expected by analysts, and include, among other effects, another €460 million of provisions at FSA, a loss of €482 million on its exposure to failed investment bank Lehman Brothers, €304 million of trading losses and a hit of €188 million stemming from the collapse of the Icelandic banking system.