France to Invest 10.5 Billion Euros in BNP, SocGen, Other Banks

France to Invest 10.5 Billion Euros in BNP, SocGen, Other Banks


Oct. 21 (Bloomberg) -- BNP Paribas SA, Societe Generale SA and four other French banks will get 10.5 billion euros ($14 billion) from the government, tapping for the first time the 360 billion-euro state rescue package unveiled this month.

The government will subscribe to subordinated debt issued by the country's six biggest banks, without acquiring voting rights, Finance Minister Christine Lagarde said at a press conference in Paris yesterday. In exchange, the banks will have to boost lending to companies and households, she said.

``It's a balanced approach,'' said Gilles Moec, an economist at Bank of America Corp. in London. ``The government wants to avoid a contraction in the French credit markets at all costs. The banks now have more than enough to protect themselves from the risks that have paralyzed them since the summer.''

Governments from Washington to London to Berlin have rushed to shore up banks' capital and unlock lending since credit markets froze up following the Sept. 15 bankruptcy of Lehman Brothers Holdings Inc. On Oct. 12, France, Germany, Spain, the Netherlands and Austria committed 1.3 trillion euros to guarantee bank loans and take stakes in lenders racing to prevent the collapse of the financial system.

The other banks included in the French investment plan unveiled yesterday are Credit Agricole SA, Credit Mutuel, Caisse d'Epargne and Banque Populaire. The funds will boost the banks' shareholder equity and increase solvency ratios without being dilutive for shareholders, helping to increase credit, the Bank of France, the central bank, said.

`Not a Gift'

``The goal is to ensure the bank networks will be able to continue financing the economy while maintaining high solvency levels,'' Lagarde said. The banks ``must commit to increasing loans to the economy and guarantee financing adapted to the needs of households, companies, and local government.''

Credit Agricole will sell 3 billion euros of subordinated debt, BNP Paribas 2.55 billion euros and Societe Generale 1.7 billion euros. Customer-owned lenders Caisse d'Epargne and Banque Populaire will sell 1.1 billion euros and 950 million euros of debt, respectively, and Credit Mutuel will issue 1.2 billion euros of debt.

``The state is not giving a gift to the banks,'' Lagarde said. ``The pricing of these securities will be based on available market references. They will generate substantial revenue for the state.''

Other Efforts

Other European governments have this month invested in banks hit by the global credit crunch. The Dutch government bought local units of Fortis and ABN Amro Holding NV for 16.8 billion euros. Zurich-based UBS AG agreed to sell a stake of 6 billion Swiss francs ($5.2 billion) to the government and split off as much as $60 billion of risky assets.

The U.K.'s Royal Bank of Scotland may sell as much as 20 billion pounds of stock to the government unless investors agree to buy shares. On Oct. 19, the Netherlands said ING Groep NV, the biggest Dutch financial-services firm, will get 10 billion euros after it warned of its first quarterly loss.

In the U.S., Treasury Secretary Henry Paulson plans to spend $250 billion of a $700 billion bailout package to buy non- voting preferred equity stakes in banks.

The latest French effort is not aimed at beefing up capital, but at easing lending, Christian Noyer, European Central Bank governing council member and governor of the Bank of France, said at the press conference.

``The goal of this operation isn't to recapitalize those banks that need it but to support financing for the economy,'' he said.

Slowing Lending

Lagarde said yesterday that French growth in 2009 will probably fall short of the government's 1 percent forecast as the financial and economic crisis limits any expansion. French statistics institute Insee estimates the euro region's second- largest economy slipped into a recession in the third quarter.

The growth in lending to the private sector slowed to 10.2 percent in August from a year earlier, compared with 12 percent just two months before, according to Bank of France statistics. In another central bank survey, more than half of the banks said they would tighten lending criteria in the third quarter.

The French government last week said it will set up two entities, one that will lend up to 320 billion euros to banks and another that will spend as much as 40 billion euros to take equity stakes in banks, if needed. The measures, designed to restore liquidity to financial markets, were part of a plan agreed by the 15 countries that use the euro.

The government, along with Belgium and Luxembourg, this month guaranteed the borrowings of Dexia SA, extending a 6.4 billion-euro bailout of the world's largest lender to local governments.

BLOOMBERG