Credit Lyonnais Needs More Cash Props For Sell Off

Gutted by a fire in the summer, it is full of the noise and activity of reconstruction. Sitting in his office - which was left untouched by the blaze - Jean Peyrelevade, chairman, cannot conceal his satisfaction at the rebound into profits to FFr67m ($13m) for the group for the first six months of the year, unveiled yesterday after tense negotiations in the past few weeks.

''There are two big chapters in the history of the turnaround of Credit Lyonnais,'' he says. ''We have just closed the first one with the return to operating profits. The second - and it was not me who opened it - is to prepare for privatisation as soon as possible.''

 

There is more than a little revisionism in these remarks. After all, it was Peyrelevade who wrote in the 1994 annual report that he believed the bank should be profitable again from 1995. When they proved to be a meagre FFr13m, he said Credit Lyonnais was marching on its two feet again. Yet now he talks of the need for a new ''adaptation plan'' requiring additional state funding to prepare for the state sell-off, which most people had assumed was an integral part of the previous rescue plan.

After two previous packages brokered since spring 1994, Jean Arthuis, the French minister of economics and finance, last week unveiled details of an additional FFr3.9bn in state aid without which the bank would have plummeted into the red again on Thursday. He said in the same breath that discussions were under way for the preparation of a fourth plan to prepare it for a swift sell-off.

Whereas the previous versions - carrying subsidies capped by Brussels at FFr45bn - were ''rescue'' plans, the new one would be for ''recovery''. Why has so much aid been necessary, so long after Peyrelevade was appointed by the state at the end of 1993 to clean up the problems inherited from his predecessors, whose uncontrolled expansion policies had left the bank with accumulated losses between 1992 and 1994 of more than FFr21bn?

It rapidly became clear that the legacy of the previous chairmen - who used expensive financing methods to acquire assets which turned sour - would eventually cost far more than these operating losses. An initial FFr42bn in property activities was ring-fenced by the bank into a company called OIG with limited guarantees from the French state in spring 1994. This was simply tinkering. Many of the bank's other investments also needed treatment. Eventually the second plan, brokered during 1995, hived off FFr132bn in assets including OIG into a new company called CDR.