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France prepares second round of banking aid

(Agencies)
Updated: 2009-01-21 20:02

PARIS -- France expects a quick approval by European authorities for a second round of its bank bailout plan, the finance minister said Wednesday.

France's Finance Minister Christine Lagarde listens to European Economic Affairs Commissioner Joaquin Almunia (R) during an EU finance ministers meeting in Brussels January 20, 2009. [Agencies]

Christine Lagarde said the second tranche of euro10.5 billion ($13.58 billion), which must be discussed with the European Commission, is expected to gain approval faster than the first round "because the size has already been discussed with the European Commission, and second, we're going to use a mechanism very similar to that used by Italy" to aid its banks.

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"It won't be a copy-and-paste job, but the commission already knows about the preference share mechanism" already used in Italy and which France will adapt for its banks, Lagarde said on RTL radio. Lagarde said she would formally inform the Commission of the operation on Wednesday.

The government announced the second tranche Tuesday night after a meeting between the country's top banking executives with French President Nicolas Sarkozy, Prime Minister Francois Fillon, and Lagarde.

The money will go to France's top six banks, who received shares of the first euro10.5 billion tranche of aid last month. They will this time have a choice of how to receive the government funds, intended to shore up their capital and support increased lending to the economy.

The banks -- BNP Paribas SA, Societe Generale SA, Credit Agricole SA, Caisse d'Epargne, Credit Mutuel and Banque Populaire -- will have the choice of selling the state subordinated debt with the same characteristics as that subscribed by the state in the first round, or selling the state preference shares without voting rights, according to a statement from the Finance Ministry.

In exchange for receiving government funds, the banks have pledged to increase lending by between 3 or 4 percent annually, and to favor building their capital reserves over paying dividends, the ministry said.

The chief executives of the banks also agreed to renounce their 2008 bonuses, which had been a key demand of President Nicolas Sarkozy.