Post-Dexia Lender to French Towns Seeks to Move Past Toxic Days
Philippe Mills, who heads the French municipal lender born this year from the ashes of Dexia SA, wants to put the bank’s “toxic” days behind it and raise money to help fund towns in 2014, a year of key local elections.
Mills, the chief executive officer of the state-owned Societe de Financement Local, or SFIL, plans to raise as much as 6 billion euros ($8.3 billion) in covered bonds next year.
“In 2014, SFIL will make at least two public issuances and we will also do private placements,” Mills said in an interview at his office in the La Defense financial district on the outskirts of Paris. “We’ll finance what we should. We don’t want to be too liquid. There’s a carrying cost to that.”
The issuance plan comes as SFIL seeks to stabilize the funding of local governments in France after at least four tumultuous years as the Franco-Belgian municipal lender Dexia was being wound down. Dexia was among the first European casualties of the financial crisis and the credit crunch that followed in the wake of the collapse of Lehman Brothers Holdings Inc. in 2008. Loans by its French unit, dubbed “toxic’ by towns, were taken over by SFIL.
SFIL refinances new municipal loans sold by a joint venture of La Banque Postale and Caisse des Depots et Consignations, both based in Paris. France owns 75 percent of SFIL, while CDC and La Banque Postale own minority stakes.
French municipal governments, which face elections next year, represent 72 percent of the country’s public investments, a La Banque Postale report said last week. Their total new borrowings this year will probably drop to 19.2 billion euros from 21.4 billion euros in 2012, the report showed.
To help narrow the gap from Dexia’s winding down, CDC has pledged billions of euros of financing for local government projects while French towns last year tripled bond issuance. Dexia’s loans at their peak represented 40 percent of the country’s municipal funding.
At SFIL, which took over Dexia Municipal Agency, or DMA, private issuances will next year represent at least a third of the company’s target of between 4 billion euros and 6 billion euros of covered-bond funding, Mills said. SFIL, whose first covered-bond transaction was in June, raised 3.06 billion euros this year, half of it through private placements.
While SFIL doesn’t want to be “over-liquid” as it uses its covered-bond issuance to refinance municipal loans, next year it also aims to “re-profile, redesign the issuance curve inherited from DMA,” Mills said. “We are going to make some securities buybacks,” he said, without providing more details.
Mills, who headed France’s sovereign-debt-management body, Agence France Tresor, also wants to increase funding from “essential” investors such as central banks outside of Europe. In coming weeks, he plans to visit eight Asian countries from China and Japan to Malaysia.
Back home, SFIL has a new rival in municipal financing as French towns seek to group their issuances.
Eleven local governments from Bordeaux to Grenoble this week created Agence France Locale, which plans to tap investors and start lending to its members by the end of 2014.
Meanwhile, SFIL is also working on shrinking the toxic loans it took over from Dexia. It held 8 billion euros of “sensitive” loans by the end of September, related to 868 clients, Mills said.
“We have already made proposals to 40 percent of the borrowers,” he said.
The bank has completed deals with 43 borrowers on 317 million euros of loans and is in advanced talks with 25 clients on 205 million euros of lending, he said.
To help alleviate the burden of the riskiest structured loans, the French government plans to set up a 1.5 billion-euro support fund for local governments, according to the 2014 finance bill currently under discussion.
The fund will receive 100 million euros annually over the next 15 years from the state and the banking industry.
“We are going to contribute significantly” to the fund, Mills said. SFIL took provisions “in a very conservative way” on its structured loan book and it may take write backs because of the support fund’s creation, he said.
To contact the reporter on this story: Fabio Benedetti-Valentini in Paris at firstname.lastname@example.org