Credit Lyonnais counts the cost of Dutch courage

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The Independent Online
CREDIT LYONNAIS, one of the big three French banks, used to bill itself as the bank with 'the power to say yes'. During its ambitious expansion in the late 1980s, it said yes, yes, yes to all kinds of borrowers. Now, with soaring losses and a sharply deteriorating balance sheet, it is paying a high price for this promiscuity.

Between 1985 and 1991 its assets doubled, but many of its loans started to go wrong almost as quickly. It was forced to make net bad debt provisions amounting to Fr14.7bn ( pounds 1.7bn) in 1992 and Fr7.3bn in the first half of 1993, taking it into loss for the first time since 1974. Jean-Yves Haberer, the former civil servant who captained the bank's aggressive strategy, walked the plank in November.

Credit Lyonnais has been caught up in most of the big corporate collapses of recent years. Its latest problem debt is the DM246m ( pounds 95m) it is owed by the troubled German conglomerate Metallgesellschaft. Credit Lyonnais is one of its five biggest creditors. Other disasters include loans to Olympia & York, the Maxwell empire and Ferruzzi Finanziaria. It is also a lender to Euro Disney, although not one of the lead banks.

Yet the most spectacular misjudgements were made by its Dutch subsidiary, CLBN. Its carefree lending of an estimated dollars 2.5bn ( pounds 1.7bn) to Hollywood alone between 1986 and 1990 accounted for nearly a fifth of last year's provisions.

The bank's single biggest problem has been loans totalling around dollars 1bn made by CLBN to Giancarlo Parretti, the controversial Italian financier who bought Metro-Goldwyn-Mayer in 1990.

Within a few months, MGM was heading for bankruptcy. Credit Lyonnais put in another dollars 145m to save it and turfed out Mr Parretti. It now controls the loss-making studio, whose most successful film in recent years has been Thelma and Louise, but under US law must sell it by mid-1997.

CLBN was also responsible for loans of around SFr600m ( pounds 270m) to the Swiss holding company Sasea, bought by another Italian businessman, Florio Fiorini, in 1985. CLBN helped to finance Sasea's rapid expansion until it went bankrupt in 1992, accounting for another fifth of the Credit Lyonnais provisions in 1992.

The traditionally secretive bank has given no indication of the scale of provisions it has had to make for individual disasters. However, it does own up to an even bigger problem: lending to the troubled French property market.

Dud property loans accounted for a quarter of 1992's provisions, and nearly a third of those made for the first six months of 1993. Credit Lyonnais complains that the market is still 'morose' and says its exposure to 'market sensitive' real estate loans is Fr26.4bn.

Predicting future losses is tricky. 'The provisions question is wide open with the change of chairman,' says Sheila Garrard, an analyst at Lehman Brothers. 'It could be his opportunity for a clean sweep.' Brokers estimate that 1993 provisions could be around Fr15bn. But 'anything bigger is perfectly possible', according to Ms Garrard.

One thing clear is that the new chairman - Jean Peyrelevade, the former head of Union des Assurances de Paris - is under orders to package Credit Lyonnais for privatisation. It is due to go on sale in 1995.

Selling a bank in growing financial difficulties will not be easy at a time when the French public is being offered a range of large state-owned businesses in far better financial condition. If Credit Lyonnais were not currently state owned and likely to receive some kind of aid, Mr Peyrelevade's job would look well nigh impossible.