France said to have a plot to shore up banks

FRANCE’S government plans to take stakes in its biggest banks if they suffer huge losses from falls in the value of their sovereign debt holdings, a French newspaper reported yesterday.

Le Figaro newspaper said the government agency that manages state shareholdings had been working for a few days on how it would act if it had to move to bolster one or more banks.

The French government has repeatedly denied that it has agreed a backroom deal with banks such as BNP Paribas, Société Générale and Crédit Agricole to guarantee their health in the event of a massive write-off in the value of their Eurozone bond piles.

The paper quoted a source close to the matter saying the plans had involved a scenario where intervention was limited to two or three banks, unlike a broader support plan drawn up in 2008 in the last financial crisis.

In September the government said no such plan existed, and commentators have argued that state support for the banking sector would leave France at risk of losing its AAA credit rating.

But some City traders have privately voiced their belief that French bank chief executives have been so publicly confident of avoiding losses from their sovereign debt holdings that there must be some government guarantee.