France rescues lender CIF after search for buyer fails

PARIS (Reuters) - The French government said on Saturday it had agreed to rescue troubled mortgage provider Credit Immobilier de France after a fruitless search for a buyer for the lender, which faced a liquidity crisis.

CIF had been up for sale since at least May after its future was thrown into doubt by the evaporation of once-cheap funding from credit markets, on which it depends to finance its operations.

"To allow the CIF group to respect its overall commitments, the state decided to respond favourably to its request to grant it a guarantee," Finance Minister Pierre Moscovici said in a statement.

The CIF rescue is the latest in a series of headaches for newly elected Socialist President Francois Hollande, whose government is already struggling to minimise planned layoffs at other crisis-hit companies like Peugeot and Carrefour, as well as the final wind-down of Franco-Belgian lender Dexia (DEXI.BR).

The state guarantee to CIF, facing the expiration of a 1.75 billion euro (1.39 billion pounds) covered bond in early October, was subject to approval by the European Commission, Moscovici said.

On Tuesday, Moody's cut CIF's credit rating, citing what it said was an increasing probability that the banking group would be placed into a "run-off" scenario rather than being rescued as a going concern, raising risks for its creditors.

The government, which said CIF's business model had been weakened by incoming tougher bank capital ratios, did not say whether it would still seek a buyer or try to wind down the group.

Moody's said a "run-off scenario is probably not the preferred solution of the French government due to the importance of the bank's lending activities to the French housing market, especially in assisting less privileged households".

However, a report by Le Figaro newspaper, whose online edition broke the news of the government rescue, said a winding down of the group, which has about 300 branches, was the most likely outcome.

Earlier this week, business daily Les Echos reported that another government-owned bank, Banque Postale, was opposed to rescuing CIF itself.

CIF's Chief Executive Claude Sadoun is resigning, to be replaced by Bernard Sevez.

The government, which did not mention Sadoun by name, said it would ask the company's "previous CEO" to relinquish all potential severance payments.

(Reporting By Christian Plumb; Editing by Ralph Gowling)