Merger of 2 Banks Caisse d’Épargne and Banque Populaire

Merger of 2 Banks Caisse d’Épargne and Banque Populaire

The French government, eager to shore up two banks that have been shaken by ill-fated investments on American markets, has stepped in to accelerate their merger and will take partial ownership.

Up to 5 billion euros, or $6.4 billion, will be injected into the bank that will result from the merger of the mutual banks Caisse d’Épargne and Banque Populaire, through the purchase of bonds that can be converted into shares, the government said.

A spokeswoman for the president’s office, Veronique Waché, said Monday that a decision on the bank’s management would be reached by the end of the week.

French newspapers, citing unidentified sources, reported Monday that President Nicolas Sarkozy planned to name a top economic adviser, François Pérol, as the bank’s chief executive.

The finance minister, Christine Lagarde, said Monday that the exact amount to be invested would probably be announced Thursday, when Banque Populaire was scheduled to release its financial results for 2008.

Speaking on Europe 1 radio, Ms. Lagarde said a management change would be part of the merger, which has been planned for several months.

“It’s important, when you put in public money, that the state have representatives it can trust and who are competent,” she added. “In terms of confidence and competence, I don’t think anyone would contest the qualities in particular of Mr. Pérol.”

Mr. Pérol worked for Mr. Sarkozy when he was finance minister in 2004. A year later, Mr. Pérol left government service to take a job at the investment bank Rothschild. When Mr. Sarkozy became president in 2007, Mr. Pérol was named his deputy chief of staff.

Caisse d’Épargne and Banque Populaire, which primarily lend to French individuals and businesses, joined their investment banking and asset management operations in 2006. The new division, Natixis, moved quickly to expand its trading operations.

But the financial turmoil hit Natixis hard, as did the discovery in October of unauthorized trading on American derivatives, which led to a loss of 600 million euros.

Ms. Lagarde indicated Monday that Natixis’s situation had not improved from November, when it reported a loss of 234 million euros for the third quarter. “As for all investment banks, it has suffered the consequences of this crisis, and obviously its results are going to show that,” she said. Natixis reports its 2008 results Thursday, as does Caisse d’Épargne.

The merger would create one of France’s largest banks, which the government hopes will make it better able to withstand the recession.

But the nomination of a Sarkozy aide to lead the bank has drawn criticism. Jean Arthuis, a senator who leads the body’s finance commission, told Le Parisien newspaper on Monday that Mr. Pérol’s nomination as chief executive would be unethical. A government commission must approve any request by a civil servant to leave and join a private company.

Mr. Arthuis said the rules of the commission “forbid people in positions of administrative responsibility who have had knowledge of a dossier, either directly or indirectly, to be named to head a company at the heart of the dossier.”

“This is the case of François Pérol,” he added.

The top management has not yet been finalised and a decision is expected by the end of the week.

Banque Populaire and Groupe Caisse d'Epargne announced plans to merge last year to help them weather the economic downturn.

The two banks have been hit hard by losses at Natixis, which has been badly burned by the financial crisis and has been propped up several times by Caisse d'Epargne and Banque Populaire, as well as being forced last summer into a deeply-discounted 3.7-billion-euro capital increase.