France seen moving towards bank bailout

Mon Sep 26, 2011 9:00am EDT
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By Christian Plumb and Julien Ponthus

PARIS (Reuters) - Investors and analysts who think a government bailout for the troubled French banking sector is increasingly likely are focusing on what form any aid could take, even as banks continue to deny they need state help.

The possibility of a bailout jumped from speculation to something much more concrete at the weekend after Bank of France Chairman Christian Noyer said in an interview that a support mechanism set up in 2008 could be used to shore up banks' capital in case of an "extraordinary event."

On Monday, at least five different analyst research notes discussed the increasing likelihood of a government move to inject capital into BNP Paribas, Societe Generale and Credit Agricole.

"We believe the longer the crisis continues, the greater the likelihood that the French government will opt for some form of market 'shock therapy' to reintroduce confidence in the French banks' viability," said HSBC analysts in one.

All three banks surged on Monday, tracking a broader rally in European banks, whose shares have been hammered in recent months. Societe Generale, for example, had lost 57 percent in the three months through Friday, while Credit Agricole was down 55 percent over the same period.

"The sentiment that the (French) state is there to support the banks if needed explains the rebound even if the banks say they have no need for it," said Frederic Rozier, a fund manager at Meeschaert Asset Management.

All three banks have continued to deny that any bailout is needed or being planned, but as Nomura analyst Jon Peace said in a research note on Monday, there were also strenuous denials in 2008 until just days before the French government moved in with a recapitalization plan.

'MORE FLEXIBILITY'   Continued...

<p>People walk in front of a branch of French BNP Paribas bank in Marseille, September 13, 2011. REUTERS/Jean-Paul Pelissier</p>