Making Unique Observations in a Very Cluttered World

Sunday, 2 September 2012

September Arrives, As Does The French "Dexia Moment" - France Nationalizes Its Second Largest Mortgage Lender -

September Arrives, As Does The French "Dexia Moment" - France Nationalizes Its Second Largest Mortgage Lender - 

September has arrived which means for Europe reality can, mercifully, return. First on the agenda: moments ago the French government suddenly announced the nationalization of troubled mortgage lender Credit Immobilier de France, which is also the country's second lagrest mortgage specialist after an attempt to find a buyer for the company failed. "To allow the CIF group to respect its overall commitments, the state decided to respond favourably to its request to grant it a guarantee," Finance Minister Pierre Moscovici said according to Reuters. What he really meant was that in order to avoid a bank run following the realization that the housing crisis has finally come home, his boss, socialist Hollande, has decided to renege on his core campaign promise, and bail out an "evil, evil" bank. Sadly, while the nationalization was predicted by us long ago, the reality is that the French government waited too long with the sale, which prompted the Moody's downgrade of CIF by 3 notches earlier this week, which in turn was the catalyst that made any delay in the nationalization inevitable. The alternative: fears that one of the key players in the French mortgage house of cards was effectively insolvent would spread like wildfire, leading to disastrous consequences for the banking system. End result: congratulations France: your Fannie/Freddie-Dexia moment has finally arrived, and the score, naturally: bankers 1 - taxpayers 0.

From Le Figaro:

Here comes another crisis that the new government could do well without. After the latest downgrade by Moody's, the fate of Crédit Immobilier de France (CIF) was sealed. After failing to find a willing buyer, the lender called the State to the rescue.

"To allow the group CIF to meet all its commitments, the government decided to respond favorably to its request to grant a guarantee," said Saturday the Ministry of Economy, confirming a report in Le Figaro. "This guarantee will be implemented subject to the approval of the European Commission and Parliament, which will be seized within the next Finance Bill," says the statement of Bercy. As in the granting of state guarantees for Dexia, the government needs the approval of Brussels under the State aid procedure.

The government supports the establishment to avoid panic on a large French issuer. Because if the CIF is a small branch network with 300 branches, more than 30 billion euros in loans bear its signature. However, the downgrade by Moody's gave investors the right to be reimbursed for certain bond lines. Therefore unable to refinance since the first degradation of the note in February, was moving rapidly towards the liquidity crisis. Friday evening, a board of CIF followed up with the inevitable next step.
Just so the French government doesn't look like it is folding like a cheap lawn chair after all those loud populist campaign promises, there was a casualty:

The government has set conditions for their intervention. One of them has already been met. Claude Sadoun, CEO of the banking system, leaves office. His successor will be chosen by the state. It is up to the banking group, owned 56 SACICAP, regional companies and local communities around the world HLM - prepare a resolution plan that will be presented in Brussels.
In other words, France just had its Dexia moment, roughly one year after the Belgian bank suffered the same fate, and 4 years after America's had its own Fannie/Freddie mortgage lender nationalization incident. Looks like history will rhyme yet again.

Read more -