France’s investment in its six biggest banks brings to at least $128 billion the amount European governments are pouring into financial institutions as the US prepares to carry out a similar plan to unlock lending.
France will purchase subordinated debt from banks including BNP Paribas SA and Societe Generale SA to help shore up capital, Finance Minister Christine Lagarde said at a press conference in Paris yesterday. In exchange, the banks will have to boost lending to companies and consumers, she said. European governments have led the US in efforts to recapitalise banks and thaw credit markets. Britain, France, Germany, Spain and the Netherlands are among countries that pledged more than ¤2 trillion ($2.65 trillion) to guarantee bank loans and take stakes in lenders. US Treasury Secretary Henry Paulson, who at first rejected calls to invest directly in financial companies, plans to spend $250 billion buying equity in banks.
Leaders in Europe “were a lot earlier than in the US to understand that banks needed more capital to help solve the liquidity side of the equation,” said Jonathan Tyce, a London- based analyst at Fox-Pitt Kelton. “It is an evolution and the approaches are becoming more tailored to the banks' needs.”
BNP Paribas, Societe Generale and Credit Agricole SA rose in Paris trading after Lagarde announced her ¤10.5 billion plan. BNP Paribas, France's biggest bank, advanced 7.7 per cent to ¤59.12 by 12:33 pm, while Societe Generale climbed 9.5 per cent to ¤48.12. Credit Agricole gained 12 per cent to ¤11.69.
Swedish banks, including SEB AB and Swedbank, also rallied after the government pledged as much as 1.5 trillion kronor ($205 billion) on Monday to guarantee loans and created a fund that may buy shares in banks.
Capital Outpaces Losses: European financial institutions have raised about $266.5 billion from investors and governments since the credit crisis began last year, more than the $228 billion of credit losses and writedowns they reported, data compiled by Bloomberg show. In the US, capital raisings still trail writedowns, the figures show. In addition to France's three largest publicly traded banks, the government will invest in customer-owned 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, said France's central bank. The purchases are part of the ¤360 billion state rescue package France announced last week.
“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.”
Helping the Economy: Like governments in London and Berlin, French President Nicolas Sarkozy is attaching strings to the capital injection. UK Prime Minister Gordon Brown has demanded banks offer help to homeowners struggling to pay mortgages and accept government- appointed board members.
German Chancellor Angela Merkel insists on “state influence” over management decisions.
“The goal of this operation isn't to recapitalize those banks that need it but to support financing for the economy,” said Christian Noyer, European Central Bank governing council member and governor of the Bank of France.
Credit Agricole, which operates France's largest consumer- banking network, will sell ¤3 billion of subordinated debt, BNP Paribas ¤2.55 billion and Societe Generale ¤1.7 billion. Caisse d'Epargne and Banque Populaire will sell ¤1.1 billion and ¤950 million of debt respectively. Credit Mutuel will issue ¤1.2 billion of debt.
‘Not a Gift’: “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.”
The French actions follow efforts across Europe. The Dutch government bought local units of Fortis and ABN Amro Holding NV for ¤16.8 billion . 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 into a fund backed by the central bank.
The UK’s Royal Bank of Scotland Group Plc may sell as much as £20 billion of stock to the government unless investors agree to buy shares. On October 19, the Netherlands said ING Groep NV, the biggest Dutch financial-services firm, will get ¤10 billion after it warned of its first quarterly loss.
In the US, Paulson allocated an initial $125 billion to nine of the largest banks, including Citigroup Inc. and Morgan Stanley, and now plans to inject $125 billion into other lenders, using funds from a $700 billion bailout package to buy the non-voting preferred equity stakes.
French Growth Slowing: Lagarde said yesterday that French growth in 2009 will probably fall short of the government's 1 per cent 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 per cent in August from a year earlier, compared with 12 per cent 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 to banks and another that will spend as much as ¤40 billion 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.
