Dexia, the Franco-Belgian bank, yesterday said it had agreed to pay €400 million in compensation to thousands of Dutch customers who are suing it for allegedly mis-selling investment products.

Wim Duisenberg, the former governor of the European Central Bank, brokered the deal between Dexia and two foundations representing the Dutch investors.

If a majority of the foundations' members accept the deal they will drop their lawsuits against Dexia, ending a long-running legal battle that has tarnished the bank's reputation in Holland.

Mr Duisenberg's appointment in February reflected concerns at the top levels of government over the damage done to financial credibility in the Netherlands as the row lingered on.

The dispute had its origins in controversial share- leasing products sold by Labouchere, a Dutch bank Dexia acquired from Aegon in 2000.

The scheme caused outrage in the Netherlands after the stock market collapsed and small investors saw the value of their equity investments dwindle, leaving them unable to repay loans they took out to buy the shares in the first instance.

By then Labouchere had stopped selling the products. However investors claimed that they had not been sufficiently informed about the risks of the products and sued Dexia to recoup their losses.