French PM : financial system solid but some banks ailing

French Prime Minister Jean-Marc Ayrault said Sunday that France's financial system is solid, even though the state was this weekend forced to help struggling mortgage lender Credit Immobilier (CIF). "It is globally (solid), but there are a certain number of banks or establishments that are posing problems. Since I have taken up my post, we have had to deal with two situations -- CIF and Dexia," Ayrault said. The CIF case is "very important because it is also about housing finance," he noted, without naming other banks which were facing trouble. First bailed out in 2008 amid the global financial crisis, Dexia was not able to survive subsequent turmoil created by the eurozone debt crisis. In October last year France, Belgium and Luxembourg stepped in to wind up the bank. Meanwhile, sources told AFP on Sunday that the French state would guarantee CIF to the tune of 4.7 billion euros ($5.9 billion) and wind down its operations. France said on Saturday it would grant the guarantee to CIF, which has been hit by a liquidity crisis as markets shunned its calls for financing and must find 1.75 billion euros to pay off creditors in October. Sources close to the matter said CIF, which specialised in mortgage lending to less privileged families, would cease providing new loans as its financial model was no longer viable. Unlike banks, CIF does not take deposits from savers and rather taps the financial markets for funds to lend to homebuyers. But tightened rules aimed at averting a repeat of the financial crisis have called into question the group's financing model. A recent credit downgrade by ratings agency Moody's added to its problems, forcing it to turn to the state for help. CIF has 33 billion euros on its loan books. Meanwhile, the French association of bank users said that granting a guarantee to CIF was a "high-risk gamble". "We understand the procedure. But this method has so far led to a disaster," Serge Maitre, spokesman for the association said, citing Dexia as a precedent.