EU Said to Be Revising Guidelines in Boost for French Bank Plan

By Matthew Newman and Sandrine Rastello

Dec. 2 (Bloomberg) -- The European Commission and the European Central Bank are working on state-aid guidelines in a move that would pave the way for approval of France’s 10.5 billion-euro ($13 billion) bank-rescue plan, two officials familiar with the matter said.

European Union Competition Commissioner Neelie Kroes will discuss the proposed recapitalization measures at a meeting of EU finance ministers in Brussels today, according to the officials, who requested anonymity because they are not authorized to discuss the negotiations. The revised policy would clarify when governments’ can give new capital to “fundamentally sound” banks, said the officials.

Governments across Europe are seeking to shore up the financial system after the credit crisis froze inter-bank lending over the past two months. Some European governments, such as Spain, are worried that bank rescues could distort competition and break antitrust rules by leaving lenders better capitalized than institutions in other countries.

French President Nicholas Sarkozy’s administration said on Oct. 20 it would give the country’s six biggest banks as much as 10.5 billion euros as part of a 360 billion-euro rescue package. The decision was made on the condition that the banks, including BNP Paribas SA and Societe Generale SA, increase lending to companies and households by between 3 percent and 4 percent.

The European Central Bank and several EU governments asked the commission to provide clarity on what is considered a “fundamentally sound” institution, one of the officials said.

More Guidance

The commission needs to give more guidance to governments because it is not clear that all the banks that would get capital are fundamentally sound, the person said. The analysis is moving more to a case-by-case basis that’s linked with a bank’s risk profile, one of the people said, without specifying whether any particular bank is in trouble.

Several governments asked the commission to impose less stringent conditions on fundamentally sound banks. These countries wanted their banks to be able to issue dividends to shareholders, one person said.

Following the initial response to the crisis in which governments provided banks with deposit and credit guarantees, countries are focusing on lending, particularly to avoid credit problems hurting small businesses. The commission wants governments to help avoid such “systemic” problems that will hurt the region’s chances of recovering from the economic downturn.

“The commission wants to make sure that the money will be used to give loans to the real economy,” Jonathan Todd, spokesman for Kroes, told journalists yesterday at a regular briefing in Brussels. The money has to be used to “improve the competitive situation of the banks receiving the loans.”

To contact the reporters on this story: Matthew Newman in Brussels at Mnewman6@bloomberg.net; Sandrine Rastello in Paris at srastello@bloomberg.net.