Credit foncier reels under huge losses

News

Rachel Frampton

02 December 1999

The future of one of Paris’ oldest financial institutions is in doubt, as the French property crash continues to take its toll. By Michael Rowe.

When Crédit Foncier de France (CFF) announced 1995 losses of FFr 10.4bn at the end of April, the markets lost little time in knocking 50% off its share price, and the French government had to guarantee repayment of the bank’s bonds on maturity.

Much of the loss was attributable to heavy provisioning of non-performing property loans as part of CFF’s restructuring programme. A longer-term issue that remains an open question is whether France’s modernised financial sector can still accommodate a specialist institution like the CFF, which concentrates all its activities on real estate lending.

Created by special legislation in the middle of the last century, the Crédit Foncier de France operates as a private sector company, and its shares are traded on the Paris stock exchange.

Yet its chief executive, or governor, is appointed by the French government, and until recently, CFF enjoyed a monopoly on its core activity, lending on subsidised housing.

The removal of that monopoly at the end of last year brought on a crisis of identity that stretches far beyond CFF’s immediate bad debt problems.

Perhaps to its credit, CFF attempted to take the initiative, when it proposed a merger with quoted property company Société des Immeubles de France, in which it has a 52% stake. It had hoped to shore up its share price and gain a new lease of life by joining forces with the traditional property investment company.

But a group of minority shareholders persuaded the Paris Bourse that the deal was against their interests, arguing that the CFF offer undervalued their shares and would result in them losing voting rights.

Observers are speculating whether CFF itself now presents a tempting takeover target for other financial institutions.

Moreover, two international institutions – Union Bank of Switzerland, and the US fund Templeton – each now owns a little under 10% of the CFF’s total equity via investment funds. However, it now looks very unlikely that the French government will be prepared to pump in new capital, and a widespread feeling is that the share price might have to fall even further to make to CFF a saleable proposition

Despite its statutory interest in the affairs of the CFF, the French government has shown little, if any, appetite for injecting new capital. Taxpayers’ money has already been easily expended on the other big buy-outs such as the rescue plan for the Crédit Lyonnais.

At the same time, other French banks hit by the property recession are continuing restructuring efforts. At the beginning of May the Indosuez group announced the sale of a 51% share in its Banque Indosuez subsidiary to the Crédit Agricole banking group. This will provide Indosuez with a cash injection of FFr 6.3bn, and the deal also gives the Crédit Agricole an option to increase its holding later.

The future of one of Paris’ oldest financial institutions is in doubt, as the French property crash continues to take its toll. By Michael Rowe. When Crédit Foncier de France (CFF) announced 1995 losses of FFr 10.4bn at the end of April, the markets lost little time in knocking 50% off its share price, and the French government had to guarantee repayment of the bank’s bonds on maturity. Much of the loss was attributable to heavy provisioning of non-performing property loans as part of CFF’s restructuring programme. A longer-term issue that remains an open question is whether France’s modernised financial sector can still accommodate a specialist institution like the CFF, which concentrates all its activities on real estate lending. Created by special legislation in the middle of the last century, the Crédit Foncier de France operates as a private sector company, and its shares are traded on the Paris stock exchange. Yet its chief executive, or governor, is appointed by the French government, and until recently, CFF enjoyed a monopoly on its core activity, lending on subsidised housing. The removal of that monopoly at the end of last year brought on a crisis of identity that stretches far beyond CFF’s immediate bad debt problems. Perhaps to its credit, CFF attempted to take the initiative, when it proposed a merger with quoted property company Société des Immeubles de France, in which it has a 52% stake. It had hoped to shore up its share price and gain a new lease of life by joining forces with the traditional property investment company. But a group of minority shareholders persuaded the Paris Bourse that the deal was against their interests, arguing that the CFF offer undervalued their shares and would result in them losing voting rights. Observers are speculating whether CFF itself now presents a tempting takeover target for other financial institutions. Moreover, two international institutions – Union Bank of Switzerland, and the US fund Templeton – each now owns a little under 10% of the CFF’s total equity via investment funds. However, it now looks very unlikely that the French government will be prepared to pump in new capital, and a widespread feeling is that the share price might have to fall even further to make to CFF a saleable proposition Despite its statutory interest in the affairs of the CFF, the French government has shown little, if any, appetite for injecting new capital. Taxpayers’ money has already been easily expended on the other big buy-outs such as the rescue plan for the Crédit Lyonnais. At the same time, other French banks hit by the property recession are continuing restructuring efforts. At the beginning of May the Indosuez group announced the sale of a 51% share in its Banque Indosuez subsidiary to the Crédit Agricole banking group. This will provide Indosuez with a cash injection of FFr 6.3bn, and the deal also gives the Crédit Agricole an option to increase its holding later.