At the request of the ministries of the interior and the economy, the banks will commit to no longer selling local loans so-called “structured” riskier, which can explode the cost of their debt.
It was during a final working meeting on Friday, May 29, that institutions, including Dexia, Caisses d’Epargne, Crédit Agricole and Societe Generale, together with the associations of local elected representatives, finalize a charter of good conduct inspired by the mission of Eric Gissler, Inspector General of Finance. It provides for six commitments, on a voluntary basis, including the elimination of the most dangerous products, to better inform borrowers of the real cost of loans and to systematically propose a conventional loan alternative like payday loan consolidation.
Structured loans have hit the headlines since the summer of 2008. The rates of these loans, which are favorable in the first years, can then be multiplied by ten, and repayments vary according to other parameters, such as the exchange rate of the Swiss franc. , that of the dollar or the gap between various long-term and short-term interest rates, unrelated to the evolution of borrowers’ receipts. In some formulas, called “snowball”, the rate paid on each date accumulates with those of previous years. “Some loans were so complex that we had trouble deciphering them ourselves, ” says Eric Boulot, former global head of structured products at JP Morgan, now chairman of the Riskedge consulting firm.
Of the 100 billion euros of local government debt, 19.2% are composed of such loans, according to Finance Active, consulting firm. The Court of Auditors, which proceeds to the inventory of toxic loans, estimates, according to the first results, that 35% of the communities would be affected.
On 1 January 2009, 92% of the 805.3 million euros of debt from the Seine-Saint-Denis are structured loans. “The department has benefited, for three years, very low rates, around 1.5%, but after this period, we must pay an estimated extra cost, between 118 and 160 million euros, over eight years, or, per year, the equivalent of the construction of a college, ” protested Claude Bartolone, chairman of the general counsel.
With the crisis causing their future financial burdens to explode, local authorities are trying to secure their debt by renegotiating these toxic loans. But for many, the operation is a challenge. Seeing that its rate would go from 1% to 7% and 10%, one city wanted to replace the loan of 10 million euros, variable rate, by another, the more conventional fixed rate of 3%. But she was told that she had to pay a cancellation fee for the first loan amounting to … 10 million euros!
To get out of its credit of 45 million euros, the Syndicat intercommunal of Saint-Germain-en-Laye (Sidru), which manages the waste, should pay him 28 million euros, much more than the 6.4 million saved the first years of the loan. Communities attempting to renegotiate are routinely subject to penalties of between 25% and 40% of outstanding principal.
Plaisir (Yvelines) renegotiated, in May 2008, a loan of 10 million euros subscribed in 2006 from the Caisse d’épargne. “The loan period has been extended from twenty to thirty years and the city had to pay 800,000 euros in fees, integrated into a new credit,” says Patrick Malivet, advisor (PS) opposition.
The case of Saint-Etienne remains worrying. In 2008, the previous municipal team had accumulated a debt of 380 million euros, 70% of which was at risk loans, with eight “snowball” loans and a loan backed by the British pound. “Banks do not make any financial effort to share the risks and it is only thanks to market opportunities that we have managed to reduce to 50% the share of the most toxic loans, ” says Maurice Vincent, the mayor.
In the dock, the banks attest to their goodwill. Prime lender to the public sector, Dexia speaks, through the voice of its commercial director, Jean-Luc Guitard, “1,300 renegotiations in 2008, 200 more since the beginning of the year and 500 before us”. “The communities were worried because of the crisis, but the risks did not materialize,” says Guitard. He refuses to take responsibility for the excesses committed: “Bankers lack accurate information on the nature of the debt of communities. Some have stacked financial products on conventional credits without it appear on the balance sheet.
“The Charter is a positive step, but very insufficient, said Jean-Louis Bianco, MP (PS) Alpes-de-Haute-Provence. We would prefer a binding law for banks.”