UPDATE 3-BPCE supervisory board backs CEO Perol over probe

Fri Feb 7, 2014 1:21pm EST

Related Topics

* Perol under judicial investigation over 2009 appointment

* Probe into potential conflicts of interest

* Natixis has recovered under Perol's leadership (Adds comment from French banking and insurance regulator)

By Maya Nikolaeva and GĂ©rard Bon

PARIS, Feb 7 (Reuters) - The supervisory board of French bank BPCE has backed CEO Francois Perol as he prepares to face an investigation into whether his 2009 appointment represented a conflict of interest because of his previous work as a government adviser.

The board of France's second-biggest retail lender on Friday pledged its unanimous support to the former aide to ex-French President Nicolas Sarkozy, who faced questions from an investigating magistrate on Thursday and was subsequently placed under judicial investigation.

"The supervisory board took note of this information and wanted to testify unanimously its confidence in Francois Perol," BPCE said in a short statement.

Perol's term as CEO is due to run until late 2016, but he has faced repeated criticism from trade unions and others, who have said his work for the government included advising on a merger of major retail banks and that this makes him unsuitable for the role.

French law prohibits public servants from being hired by companies over which they have had direct authority for at least three years.

A spokeswoman for the French banking federation declined to comment on the investigation around Perol.

A spokeswoman for France's banking and insurance regulator ACPR said the probe did not hamper the functioning of BPCE's governing bodies and did not put into doubt Perol's integrity, nor his ability to manage the bank.

Perol, Sarkozy's former economic adviser, was appointed in 2009 following a state-backed merger of regional banks Banque Populaire and Caisse d'Epargne (BPCE) aimed at preventing their investment banking business, Natixis, from collapsing during the financial crisis.

However, trade unions pushed for an investigation into the nomination because Perol had also previously worked at investment company Rothschild & Cie, which played a key role in the merger that placed BPCE group in second place behind Credit Agricole in French retail banking.

A previous attempt to bring a case against Perol was thrown out. Thursday's decision followed an appeal to a higher court.

In France, executives under investigation do not have to step down from their posts and analysts said there may be some relief among investors that the bank's board backed Perol.

"Perol is an intelligent person, he has done a good job at Natixis and Caisse d'Epargnes and that is why he was re-elected," a London-based analyst said, referring to the renewal of Perol's mandate in late 2012.

Perol is not the only former high-ranking civil servant from Sarkozy's 2007-2012 presidency to face scrutiny.

Orange CEO Stephane Richard kept his post whilst being investigated over his role as a government aide in a 2008 arbitration case in which the state awarded a large pay-out to businessman Bernard Tapie.

Under Perol's leadership, Natixis has slashed its balance sheet, while restructuring efforts drove its shares up more than 100 percent in 2013.

BPCE revealed a plan late last year aimed at nearly doubling annual net profit by 2017.

Natixis CEO Laurent Mignon said in a January interview with Reuters that the investment bank had seen a turnaround under Perol's management.

Shares in Natixis closed up 0.07 percent, compared with a 0.42 percent increase in the European banking index. (Additional reporting by Matthias Blamont; Editing by James Regan and Mark Potter)

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