French firms' dividends can't deter political sniping

Big French firms have been handing out huge dividends, but not enough of the cash is making its way into voters' pockets to protect companies from political sniping in the run up to the presidential election.

Blue-chip CAC-40 firms doled out E31.17 billion in dividends last year, up some 30 per cent on 2005, and bought back €7.86 billion euros of shares, according to calculations by financial journal Vernimmen. This year's payout could be closer to €40 billion given that cement maker Lafarge, insurer AXA, power giant EDF and building and telecoms conglomerate Bouygues are among those which have recently said they plan double-digit increases in dividends.

However, given private pension funds are a rarity in France and that households typically hold fewer shares that their US or British counterparts, such windfall dividends are not expected to spread much of a feel-good effect among voters.

French politicians are therefore more inclined to court the electorate with alternative views on how big business should operate in the run up to the April/May presidential elections.

"Politicians here don't understand that capitalism makes sense if everyone can become a shareholder and both the main candidates seem to send out the message that shares are only for rich people," said Pierre-Henri Leroy, president of Proxinvest, a corporate advisory group in Paris.

"The end result is that France is out of the race when it comes to developing industrial capacity. We could have a cheaper cost of capital because we have good companies with a tremendous capacity to achieve, but we have poor ways of financing them and we have ways to tax them a lot." French politicians from both left and right tend to defend an alternative economic model and resist what conservative President Jacques Chirac refers to as unfettered liberalism. A Bank of France study in 2005 estimated some 6.3 million people hold shares in France, the equivalent of 13.7 per cent of those aged 15 years or more.

With French household consumption already robust, that just isn't enough to generate a noticeable wealth effect when dividends are paid, financial market analysts said.

"The bulk of consumption is realised by average housholds where revenues are basically labour income so while (dividends) may be one factor supporting consumption growth, it is not key to the trend," said Laurence Boone, European economist at Barclays Capital in Paris.

That has left politicians free to take pot shots at firms during the election campaign.