French state fund, postal bank plan to aid Dexia

4th October 2011, Comments 0 comments

A French state investment fund and the banking arm of the French postal service are jointly working on a plan to take on some of the activities of ailing Franco-Belgian bank Dexia, officials said Tuesday.

The Caisse des Depots and the state-owned Banque Postale plan to take over the financing of around 80 billion euros of the French and Belgian local government assets now on Dexia's books, CDC officials told AFP.

The officials said CDC director general Augustin de Romanet hopes to put a formal version of the plan to the fund's board of governors "in the shortest time possible, doubtless in the next few days."

"As a shareholder in La Poste, the Caisse de Depot is also convinced that the Banque Postale has an important role to play in this matter," one CDC official, speaking on condition of anonymity, said.

Any intervention by the state-owned funds could give Dexia vital breathing space and comes after both the French and Belgian governments publicly vowed to guarantee the local government assets held by the bank.

The Caisse des Depots is 200-year-old arm of the French state that serves as a long-term investor in projects of public interest while the Banque Postale is as a popular high-street savings bank associated with post offices.

Dexia specialises in investing on behalf of local government funds. The bank's share price plunged this week on reports that it had been hit hard by the eurozone sovereign debt crisis and might have to be broken up.

The bank was hard hit and needed government help to get through the 2008 global financial crisis after it was exposed to over-valued sub-prime investments in the US housing markets. Now, it is under fire again for its exposure to eurozone government debt.

Local governments across France have found their taxpayers' investments at risk and Paris and Brussels are determined not to allow Dexia to fail.

But the CDC and La Poste, which manage funds from French small savers' tax free deposit accounts, are seeking to negotiate with the state a "very tight framework" for their involvement that would not expose the public to risk.

The sources added that said the CDC would not undertake any investment that would endanger its own triple-A credit rating.

© 2011 AFP

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