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French Bank to Repay Government Bailout

Crédit Agricole, the French bank, said Wednesday that it would repay the €3 billion of debt the government bought last December, becoming the latest big bank to pay back a bailout.

The lender said it would pay back the $4.5 billion on Oct. 27, making it the last French bank to outline how it would return state funds that propped up its capital reserves during the financial crisis.

Unlike other major banks in France, Crédit Agricole did not opt to give the state preferred shares for a second tranche of aid in May. In the past several months, the bank said, it has issued subordinated notes in the institutional market in Europe and the United States, in a sense preparing to replace those bought by the state last year.

A subordinated note is debt that gets repaid last when a borrower has trouble, and in such cases, lenders can receive only a fraction of what they loaned. Such debt counts as part of a bank's Tier 1 capital, but not its core Tier 1, two different capital ratios that reflect a lender’s robustness.

Other banks have taken a different tack, selling new stock to raise funds. Société Générale said last week that it aimed to raise €4.8 billion, or $7.1 billion, by issuing new shares in order to pay back aid, and BNP Paribas, the largest French bank, made a similar announcement last month.

If Crédit Agricole is forgoing the sale of shares, which would count toward its core Tier 1 ratio, it is because the bank thinks, by that measure, that it is strong enough already, said Eric Hazart, banking analyst at Exane Paribas. "They say they’ve got a stronger financial structure," he said.

Crédit Agricole is not the only French bank to decide against an equity issue lately. On Monday, BPCE, the lender formed by the merger of Banque Populaire and Caisse d'Epargne this summer, announced that it, too, would tap investors with an offer of subordinated notes, another sign that banks and debt markets are continuing their slow march back to normalization.

"We've seen spreads go down," said Alain Dupis, bank analyst at Oddo, referring to the difference between yields on government and corporate debt. A large spread can mean the market expects more bankruptcies. With a lower one, he said, "we're talking recovery."

Source: New York Times
Date: 14.10.2009 [233]

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