PARIS (Reuters) - France Telecom FTE.PA shares jumped on Monday after President Francois Hollande backed its CEO to keep his job despite being put under investigation for fraud during his time as a top government aide.
France Telecom, which is 27 percent owned by the state, climbed 4.2 percent to be the biggest gainer on France's blue-chip CAC 40 index .FCHI, amid a broader rally in European telecom stocks that were up 2 percent at 5:52 a.m. ET.
Investors were relieved that Europe's fourth-biggest telecom group by sales would not face a leadership vacuum as business in its key home market gets slammed by an 18-month old price war sparked by the arrival of low-cost mobile competitor Iliad (ILD.PA).
"If (Chief Executive Stephane) Richard had been forced out, the group could have suffered during a transition phase to a new boss," said a Paris-based trader who declined to be named.
Richard's contract is up in May 2014, however, so it remains to be seen whether the investigation will affect his chances of being retained for a second term as CEO.
Richard was a top aide in the finance ministry under former president Nicolas Sarkozy when his government in 2008 awarded tycoon Bernard Tapie 285 million euros ($373 million) in damages in a legal dispute with defunct bank Credit Lyonnais.
His future at France Telecom has been in doubt since magistrates last week said they were opening a formal investigation into his role in the award. Richard has denied wrongdoing and is appealing against the investigating judge's decision to put him under investigation.
Under French law, formal investigation means there exists "serious or consistent evidence" pointing to likely implication of a suspect in a crime. It is one step closer to a trial, but a number of such investigations have been dropped without going to court.
The board of the company will meet to discuss the issue at an executive board meeting set for 3:30 pm in Paris (9:30 a.m. ET) on Monday.
But the result is a foregone conclusion now since the president said on Sunday in a television interview that Richard would stay as long as the investigation did not impede his ability to do his job.
French media reported on Sunday without citing sources that Richard could count on votes of all three board members representing the state, as well as those of at least four other independent board members.
Hollande's Socialist government decided to vote in favor of Richard because he enjoyed support from labor groups and because the judicial procedure did not prevent him from travelling abroad, Le Monde said, citing unnamed sources.
In the TV interview on Sunday, Hollande also ruled out the government selling down its stake in France Telecom because current valuations were too low to make such a sale interesting.
France Telecom shares were the third-worst performing telecom stock in Europe in the past 12 months, largely because of the erosion of mobile profitability it its home market.
Editing by David Holmes