French finmin studies law to avoid toxic loans losses-paper

PARIS, April 9 Tue Apr 9, 2013 4:06am EDT

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PARIS, April 9 (Reuters) - France's finance ministry and Dexia, BPCE and Societe Generale estimate at 20 billion euros the banks' potential liability from local governments' lawsuits over 'toxic loans', Le Figaro reported on Tuesday.

Half of that loss would be taken by bailed out bank Dexia and the French entity which inherited its municipal loans, the paper said.

The long simmering issue of local governments' claims they were fraudulently sold loans whose interest rates later spiked came to the fore in February when the region of Seine-Saint-Denis on the outskirts of Paris won a case contesting the terms of three Dexia loans.

A finance ministry source confirmed that a meeting took place between the ministry and the banks but declined to confirm the 20 billion euro ($26.03 billion) figure, saying that all discussions that took place at the time were of a preliminary nature.

To limit the budgetary damage from the ruling, the ministry is working on a law to prevent local authorities from trying to renegotiate their respective 'toxic' loans, Le Figaro said.

The new law would aim to avoid the state having to assume heavy losses on toxic loans, if additional local authorities won similar legal rulines against Dexia, the daily wrote. ($1 = 0.7682 euros) (Reporting by Alice Cannet and Jean-Baptiste Vey; Editing by David Cowell)

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