Belgian-Franco lender Dexia agreed to a massive government bailout and breakup on Monday after the credit markets froze out the bank due to its enormous exposure to toxic sovereign debt of countries like Greece.

Brussels-based Dexia last week appeared to become the first banking victim of the deepening sovereign debt crisis, which has sent financial markets plunging and threatens to send Europe to a painful double-dip recession.

Dexia said it has reached a deal to receive $121 billion in state guarantees and sell its Dexia Bank Belgium to the Belgium government for $5.4 billion. Also, the governments of Belgium, France and Luxembourg said they will provide state guarantees of up to 90 billion euros for the next decade to Dexia and its subsidiary Dexia Credit Local.

Meanwhile, Dexia is reportedly near a deal to sell off its Luxembourg business to Qatar’s royal family and the government of Luxembourg.

It’s not yet clear who will own the remaining assets of Dexia, such as its prized Turkish unit Denizbank.

Dexia, which was founded in 1996, also received a bailout in 2008 during the global financial crisis. The company has ties to the U.S. and elsewhere as it lends to municipal governments around the world and had a portfolio of 650 billion euros as of 2008.

The bailout and breakup of Dexia comes after a whirlwind weekend of government negotiations and as the leaders of France and Germany pledged bold new steps to fix the continent’s worsening debt debacle. German Chancellor Angela Merkel and French President Nicolas Sarkozy promised to shore up their banks through recapitalizations, but left out many details of their plans.

Belgium’s stock market soared to 1 1/2–week highs on the news of the breakup of Dexia, which resumed trading after being halted late last week. Dexia’s stock plummeted by more than 30% after trading started in Paris.

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