ENGLISH DEYEA NEWS

The Times | President Sarkozy is facing protests over a move to nominate a close adviser as chairman of the banking giant that will be created this week when Caisse d'Epargne and Banque Populaire announce their merger.

The controversy comes with the two mutualist banks preparing to confirm a tie-up largely orchestrated by Mr Sarkozy and his Government, which will inject up to €5 billion (£4.4 billion) into the new group. The plan is designed to shore up both banks after they were dragged into the sub-prime crisis by Natixis, the investment group that they control jointly, which was forced to write down €3.9 billion of toxic assets last year.

With Caisse d'Epargne set to announce 2008 losses of at least €2 billion and Banque Populaire of about €300 million, the merger is necessary to restore the confidence of their combined total of 36 million customers, government sources say. The new group will be the second-biggest bank in France, behind Crédit Agricole, with equity capital of more than €40 billion and deposit accounts totalling €480 billion.

The plan has been overshadowed by reports that Mr Sarkozy wants to place François Pérol, the deputy general secretary of his Élysée Palace, at the head of the new bank. With Mr Pérol instrumental in pushing for the merger, critics say that his appointment would spark a conflict of interest and effectively give Mr Sarkozy control of the company.

“I know Nicolas Sarkozy wants to be president of everything, but he is not yet president of our banks,” François Hollande, the opposition Socialist MP, said.

François Bayrou, the leader of the centrist Democratic Movement party, said that the appointment was “impossible, banned and illegal”.

Although François Fillon, the Prime Minister, refused to confirm the appointment, he said: “When a bank needs a strong state intervention, the State takes a stake or a seat on the board to ensure that the strategy followed by the bank is in the public interest.”

The State is likely to end up with a stake of up to 20 per cent in the bank, according to press reports.

Christine Lagarde, the Finance Minister, defended Mr Pérol. “No one would dream of questioning his qualities in terms of competence and trust,” she said.