French government rescues mortgage provider
THE FRENCH government has agreed to rescue Crédit Immobilier de France (CIF), after conceding defeat in attempts to find a buyer for the struggling mortgage provider.
CIF, which lends mainly to poor households, has been badly hit by a reduced flow of funding from credit markets and tighter rules on capital requirements for banks. It had been up for sale for a number of months but its fate appeared to be sealed last week when Moody’s cut its credit rating, saying it was in effect locked out of capital markets. CIF must repay a €1.75 billion covered bond in October.
The bailout comes as a setback for president François Hollande, who has found himself in the firing line over a huge round of layoffs at car manufacturer Peugeot and faces having to close a €30 billion gap in the public finances in his autumn budget. Paris is already embroiled in the €90 billion joint wind-down of Franco-Belgian lender Dexia.
Finance minister Pierre Moscovici said the government had agreed to a request from CIF to grant it a guarantee to enable it to “meet all its commitments”, after its access to wholesale market funding dried up.
“To allow the CIF group to respect its overall commitments, the state decided to respond favourably to its request to grant it a guarantee,” he said in a statement. The rescue plan is subject to approval by the European Commission, he added.
The government has not revealed the size of the bailout, nor whether it plans to try to wind down the century-old group.
However, newspaper Le Figaro said a winding-down of the group, which has about 300 branches and more than €30 billion worth of loans, was the most likely outcome. CIF does not take deposits from savers.
Explaining its downgrade of the lender last Tuesday, Moody’s said there was an increasing probability that the group would be placed into a “run-off” scenario rather than being rescued as a going concern, raising risks for its creditors.
Le Figaro, which broke news of the bailout at the weekend, said CIF finally made a formal request for help after a crisis board meeting on Friday night. The government, following the announcement that chief executive Claude Sadoun is to step down, said it would ask him to forgo all potential severance payments.
Reports last week suggested the government hoped Banque Postale, the banking division of the state-owned French post office, would take over CIF, but no offer was forthcoming.
Banque Postale is already involved in the rescue of Dexia, having agreed to join forces with the Caisse des Dépôts et Consignations, the French sovereign wealth fund, to buy Dexia’s French municipal finance unit.