* Peugeot and Santander discuss finance venture - sources
* EU decision on Banque PSA rescue expected within weeks
* Santander deal could replace Peugeot state guarantee
By Sophie Sassard and Matthieu Protard
LONDON/PARIS, July 22 PSA Peugeot Citroen
and Banco Santander are discussing a consumer
finance venture that could give the troubled carmaker more
freedom from state interference and the Spanish bank a bigger
presence in France, people with knowledge of the matter said.
Peugeot is in talks over a partial sale of Banque PSA
Finance that would allow the car loans arm to operate without
its 7 billion euro ($9.2 billion) state guarantee and strings
attached, said one of the sources, who asked not to be
identified because the discussions were confidential.
Santander and Peugeot both declined to comment.
Peugeot's guarantee, issued last year, brought limits on
executive pay and job cuts, a government-appointed board
director and a European Union state aid probe that is still
According to the Wall Street Journal, which first reported
the talks, one scenario under consideration would see Santander
take 50 percent of Banque PSA Finance or a larger joint venture.
Peugeot, the carmaker worst hit by Europe's five-year auto
market slump, made a loss of 5 billion euros last year and is
still burning through more than 100 million euros each month.
People with direct knowledge of the company's finances agree
with many analysts that, to recover from the crisis, Peugeot
will need fresh capital and a deeper alliance with General
Motors or another industrial partner.
The founding Peugeot family has offered to give up control
as part of a closer tie-up with 7 percent shareholder GM
following inconclusive talks with Chinese partner Dongfeng
, sources told Reuters last month.
Santander, already Peugeot's financing partner in Latin
America, would take on most of the loan refinancing for the
jointly held operation under the deal being discussed, one
"As a consequence, it would also free PSA from government
interference, which could potentially help negotiations with
GM," the person said.
French government officials did not return calls seeking
Peugeot was forced to negotiate last year's debt rescue
after a series of credit downgrades hit its borrowing costs.
The government set up a Peugeot oversight committee and
appointed former EADS chief executive Louis Gallois to
represent French interests on the board.
Peugeot, which is cutting 11,200 jobs over two years, also
agreed to soften its restructuring measures and refrain from
paying dividends to shareholders or stock options to
The European Commission is expected to reach a decision
within weeks on the legality of the state-backed bailout and any
remedies needed to minimize the distortion of competition.
Peugeot is confident about the EU review, a company
spokesman said, declining to discuss talks with Santander. "We
don't comment on rumours or speculation," he said.
Santander is pushing an expansion of its consumer finance
business, which includes high-margin auto-loan financing through
The division operates in 12 European countries including
Germany, Britain, Italy and Spain but is absent from France, the
region's third-biggest auto market.
Santander group already has corporate and investment banking
operations in France.