–Adds Comments From BoF Governor Noyer; More Details On 2010 Results

PARIS (MNI) – The Bank of France Monday reported a net income for
2010 of E2.559 billion, up E86 million from 2009.

The operating profit, which excludes certain exceptional items
including the payment of a E1.563 billion business tax, was E4.527
billion, down E104 million from a year earlier.

The Bank said its operating profit, still “close to the historic
level of the previous year,” was due primarily to increased revenues on
investments and tighter control of operating costs.

In a press conference to present the results to journalists, the
bank’s Governor Christian Noyer also ventured into the subject of bank
capitalization, reiterating the European Central Bank’s approval of
Ireland’s stress test results, unveiled last Thursday.

The outcome of those tests, which showed a new capital need of E24
billion for four major Irish banks, were “good,” Noyer said. He
expressed confidence that Ireland would proceed with the needed
recapitalization and restructuring of its banking sector. “Let’s hope
that leads to a return of the credibility of those banks in the market,”
he said.

Noyer expressed confidence in the condition of France’s banks,
saying that sound management and regulation “shelters them from those
kind of risks.” He said he doubted stress tests of French banks, to be
published in June along with those of other EU countries, would reveal a
need for new capital. “But we’ll see,” he said, adding that French
authorities would not be complacent.

Noyer noted that the Eurosystem’s sovereign bond purchasing program
had helped keep the return on the Bank of France’s robust, despite
extremely low short-term interest rates, because of their “significantly
superior yields.” In fact, the bank has pursued a strategy intended to
“desensitize our portfolio to the fluctuations” of market rates, he
said.

As a result, the Bank of France’s average remuneration on invested
funds was above 3.5% last year, compared with the ECB’s refinancing rate
of 1%. At the same time, the minimum yield required by the bank to cover
its costs dropped to 0.85% in 2010, from 1.03% the year before.

In general, investment in long-term instruments partially offset
the dampening impact of the 1% official rate on the Bank of France’s
investment returns. It’s revenue excluding interest was E4.9 billion in
2010, down 7% from E5.3 billion in 2009.

Due to a 5.8% increase in funds circulating within the Eurosystem
last year, the Bank of France registered an average increase of E9.1
billion in remunerative investments. Noyer said the increase in
circulating cash — E807 billion vs. E762.8 billion in 2009 — was due
to various factors, including the internationalization of the euro and
increased economic activity.

While the bank profited from the high yields on the primarily
peripheral sovereign debt it purchased, it also recognized the risks
attached to such investments. It put E400 million into a general risk
fund, “in order to respond to the global rise of risks tied to the
increase of the bank’s balance sheet and the change in credit
risk.”

Noyer noted, in addition to general market volatility, that the
Eurosystem’s relaxation of collateral rules in its refinancing auctions
had “weakened a little the level of protection” for the Bank of France
and other Eurosystem central banks.

The Bank of France also raised its capital to E1 billion and
increased the ceiling on the general reserve to two times the amount of
capital. It put aside E678 million for the general reserve, and to
finance the ECB’s capital increase. The increase in the Bank of France
general reserve brought it to the required 5% of the bank’s net profit.

The bank said that the appreciation of the dollar and other major
currencies against the euro last year had led to a slight increase in
the euro value of its foreign-currency reserves. Noyer declined to
comment in detail on the composition of the bank’s foreign reserves
other than to say that there had been “no significant modifications.” The
bank, he said “remains invested in various international currencies.”

The French central bank also reported that it paid a dividend of
E1.555 billion to the French government last year.

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