Yesterday, the French government announced guidelines for a second tranche of funding under its bank recapitalization plan, which was announced in October and approved by the European Commission last month. Depending on demand, the second tranche could be up to €10.5 billion. In order to participate, banks must issue one of two instruments by August 31, 2009:
- Subordinated debt under the same terms as the first tranche of financing
- Non-voting preferred stock, which will bear a higher dividend rate than the rate of interest on the subordinated debt (but capped at twice the interest rate on the subordinated debt)
Participating banks also will have the option of converting subordinated debt issued in the first tranche of funding into non-voting preferred stock. As a condition to participation, bank executives must agree to forgo 2008 variable bonuses. The government’s announcement reiterated that the six major banks that received funding in the first tranche have reaffirmed the commitments they made in connection with the earlier funding to increase their outstanding loans by 3% to 4% per year and have agreed to finance up to €7 billion of exports. This announcement from the French government follows the U.K. government’s decision earlier this week to expand its stabilization package.