Balladur orders Credit Lyonnais fraud probe

The French Prime Minister, Edouard Balladur, yesterday ordered a probe into possible fraud at Credit Lyonnais, as huge new losses were revealed at the troubled state-owned bank.

The order marked the first time French officials have mentioned possible criminal activity in the Credit Lyonnais debacle.

The Economics Minister, Edmond Alphandery, told French television that the bank's accumulated losses were around Fr50bn (£6bn). Speaking in a television interview, Mr Alphandery said "There appears to have been embezzlement."

With the government poised to present a second rescue plan for the bank, Mr Alphandery said French taxpayers would not be asked to foot the bill. "Credit Lyonnais has the means to deal with this," he said.

The rescue package looks more likely to go ahead after the European Commission said yesterday that some of its key concerns had been assuaged. "It's moving in the right direction," an official said.

The deal has been heavily criticised by the bank's competitors in France. But Karel Van Miert, the Commissioner for Competition, said yesterday that a meeting with Mr Alphandery had removed important doubts over the package.

"We have a very similiar approach to this dossier," he said. Commission officials underlined that their investigation would not be closed, but indicated that the meeting had gone well. "The French government, the principal shareholder in Crdit Lyonnais, seems to us to be adopting the right approach," Mr Van Miert added.

France plans to bail out the state-controlled bank by guaranteeing assets that will be spun off into a separate vehicle.

The bank's competitors charge that this amounts to a cash injection, though it will not involve any new money for Crdit Lyonnais. The Commission scrutinises such deals to ensure they do not amount to illegal subsidies to prop up ailing companies.

Mr Alphandery told Mr Van Miert that the deal would involve the bank divesting some parts of its operations, which would assuage Commission concerns.

"We agreed on this approach, on the principle that Credit Lyonnais should be stripped of a considerable part of its assets," Mr Van Miert said.

Officials said that important information would be provided by the French government over the next few days, and the investigation would continue.