MORGAN STANLEY suffered a fresh blow yesterday when it was dropped, along with JP Morgan, from the group of banks handling the €4 billion-plus (£2.7 billion) sale of a minority stake in France Télécom.

ABN Amro, Rothschild, BNP Paribas, Deutsche Bank, Goldman Sachs International and SG Corporate & Investment Banking were engaged to sell the stake, of between 6 and 8 per cent, which is expected to earn them up to €40 million in fees. However, Morgan Stanley and JP Morgan, which were involved in selling a 10.85 per cent stake in France Télécom in September, were excluded.

Morgan Stanley, which has been hit by the departure of a number of senior executives in recent weeks, declined to comment. However, a source at the bank in Paris said: “It’s not as if we did anything wrong in September. The operation was a great success.”

A spokeswoman for JP Morgan declined to comment.

An initial 152.2 million France Télécom shares — a 6 per cent stake — were put up for sale yesterday at a price of between €22.50 and €22.85 each. But the French Finance Minister, Thierry Breton, said it was possibile the deal could be expanded to 197.86 million shares, or 8 per cent of the stock, if demand was sufficient.

M Breton, who was chairman of France Télécom until his appointment to the French Cabinet this spring, hopes to raise up to €4.4 billion from the sale. The deal is the biggest in Europe since France Télécom’s sell-off in September which took the French Government's stake below 50 per cent.

M Breton is expected to use the funds to reduce the French state debt and to finance two government projects: a research agency and an industrial innovation agency.

M Breton moved swiftly at the end of a lock-in period — during which the Government pledged not to sell France Télécom’s stock after the September deal — and before his German counterpart could announce the sale of a stake in Deutsche Telekom.

France Télécom’s sale comes as France's new Prime Minister, Dominique de Villepin, is under mounting pressure to reduce his country’s 10.2 per cent unemployment rate.

Appointed last week after the French public voted “no” in the European constitution referendum, M de Villepin authorised the France Télécom sell-off to signal that he was “ready for business”, according to a French government source. He is also testing trade union reaction ahead of the politically sensitive partial privatisations of EdF, the state electricity generator, GdF, the gas supplier, and Areva, the nuclear power operator.

“The timing of this placing is political,” said Matthieu Cordier, analyst with ABN Amro in London. “They were responding to political pressure,” he said. “The placing of France Télécom is easier than that of EdF and GdF, which have bigger social implications.”

The sale will reduce the French Government’s Télécom stake to between 33.1 per cent and 34.9 per cent.

France Télécom’s new chief executive, Didier Lombard, is expected to outline his strategy on June 29. However, some analysts have expressed concern.

“Fund managers are being asked to take a leap of faith,” said Bruno Lippens, a senior portfolio manager for Robeco, in Rotterdam. “The main risks associated are the lack of clarity on future use of cashflows.”

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