France injects liquidity into its 6 biggest banks
France will inject €10.5bn into the country’s six biggest banks by the end of the year in an effort to provide capital for business and consumer lending, according to Christine Lagarde, finance minister.
The Government is to subscribe to subordinated five-year debt issued by the six banks, which will be taken over by a new government body, the SPPE, but it will not hold voting rights. Lagarde said that another €10.5bn would be allocated for 2009 “if market tensions persist”.
In exchange the French banks committed themselves to increase their loans to individuals and companies by 3-4% and to avoid giving executives extravagant severance payments known as ‘golden handshakes’.
The aim of the capital injections is to prevent ‘healthy’ French banks from suffering from a competitive disadvantage with American or British banks that dispose of a higher percentage of capital resources and better credit standing because of state subsidies. BNP Paribas became the first of the six banks to take advantage of the offer, accepting the €2.55bn the Government had earmarked for it, and Credit Agricole will receive €3bn and Societe Generale €1.7bn.
In total, Paris could eventually inject €40bn into the financial system by this method, as part of the €360bn rescue package the Government forged earlier in October. However, French daily newspaper, Le Monde, reported that the American investment bank Merrill Lynch has estimated that if the global economy were to slump into a worst-case recession, French banks would require an additional €73bn in capital to survive. |
