Two of France's leading banks, Caisse d'Epargne and Banque Populaire, have approved plans for a merger in a bid to protect themselves from the global financial tsunami.
The tie-up would create the second biggest banking group in France with combined equity capital of 40 billion euro ($77 billion), according to a Caisse d'Epargne statement yesterday.
Banque Populaire and Caisse d'Epargne are mutual banks, partly owned by their depositors, and already jointly control the investment bank Natixis, whose shares have been ravaged by the credit crunch.
Following a meeting of its board of directors, Caisse d'Epargne issued a statement approving talks on creating a single group, although both banks would retain their brand and branches.
Banque Populaire's board followed suit, with chairman Philippe Dupont set to take over as chief executive of the newly-merged group, sources said.
The banks have been discussing a possible merger for two years but were forced into action by the financial meltdown that is rattling the European banking sector.
Their plans were given a push when French rival BNP Paribas swooped to take control of ailing finance group Fortis's operations in Belgium and Luxembourg, strengthening its position greatly.
Ahead of the announcement, French Finance Minister Christine Lagarde gave a thumbs-up to the move.
"In a troubled financial world, the marriage of two major institutions and consolidation is a good reinforcement and sends a very strong message to the market,'' she said.
Prime Minister Francois Fillon went before parliament to ask parliament to support his government's moves to step in and shore up teetering banks.
The merger will require a change in legislation defining Caisse d'Epargne's statutes and approval by a French banking regulatory committee.
President Nicolas Sarkozy has pledged that no French bank will be allowed to collapse, despite a squeeze on liquidity that has seen interbank lending grind to a halt and sent shares into a tailspin.
Caisse d'Epargne is a popular fixture on the French high street, with 27 million private account holders, mostly small-scale depositors seeking a safe place for family savings and retirement nest eggs.
Last week, when the shockwaves of the Wall Street implosion began battering Europe, a report in the satirical weekly Le Canard Enchaine raised alarm over an alleged hole in the bank's accounts.
Caisse d'Epargne's management hit back forcefully, denying that there was any problem and insisting that in reality the crisis had encouraged thousands more savers to switch to its accounts from riskier investments elsewhere.
Group chairman Nicolas Merindol said the bank's ratio of debt to deposits is one of the safest in Europe and boasted that since the start of the year it had opened 760,000 new savings accounts holding 6 billion euro.
Two unions, Sud and Unsa, said they were concerned by the prospect of a merger and blamed poor management for the two banks' predicament.
"How many jobs will be sacrificed in the name of this merger?'' asked Sud, which called on Caisse d'Epargne executives to resign.
The banks are not listed on the Paris stock exchange but their Natixis subsidiary has seen its price collapse by 70% this year, triggering an investigation into alleged illegal selling of its shares.
On Wednesday, the banks announced that they had increased their respective stakes in Natixis from 34.5% to 35.25% each.
AFP
