France set to help merging banks

The two banks announced their merger plans last October

The French government could provide up to 5bn euros ($6.4bn, £4.4bn) in loans to two merging French banks, Finance Minister Christine Lagarde has said.

Banque Populaire and Caisse d'Epargne are expected to finalise the merger deal, which was announced last October, later this week.

The merged group would be France's second biggest retail bank after Credit Agricole with 480bn euros in deposits.

Ms Lagarde said the state might become a direct shareholder of the new group.

"[The loans] could be converted into shares when they come due," she said, calling the merger "an intelligent marriage".

Losses

The government plans to provide the banks with subordinated loans, which do not have to be paid back until after all creditors are reimbursed.

Caisse d'Epargne and Banque Populaire have been hit hard by losses at their investment banking subsidiary Natixis.

Natixis said in December it could potentially lose up to 450m euros, as one of the victims of an alleged fraud involving investor Bernard Madoff costing $50bn.

Meanwhile, at the end of October French police detained a trader for questioning over the loss of 751m euros at Caisse d'Epargne.

The bank's top three executives resigned that month after the loss came to light.