The cavalier bank may still have the last laugh

City & Business

EUROPE'S biggest banking scandal, Credit Lyonnais (or should I say Debit Lyonnais), is finally coming to an end, and the French government can look forward to ridding itself of one of the biggest financial headaches in the history of the continent.

Or can it? Last week's 78-page agreement between the European Commission and the French government in order to approve a bail-out of between Fr100bn (pounds 10bn) and Fr150bn came as no surprise. As one Commission official put it, "the bigger the aid, the more likely we are to approve it". The Commission may have driven a tough bargain with Paris but in the end, no one expected Brussels to outlaw government help. If they had, the financial system would have collapsed along with its biggest bank. The exact amount of CL's losses, run up by a corrupt and profligate management, are still not known.

Paris also can claim some victory in its negotiations with Brussels, managing to rebuff the Commission's earlier demands that it should sell all its European assets as a condition for approval for the aid. The recent horse-trading between the Commission and the bank went along these lines. If you want aid, you must sell off your business in New York. CL replied that to sell off its assets in the Big Apple would damage its international standing. Then the Commission suggested the bank sold off its London assets, including the securities house, CL Securities Europe. The bank was having none of that either, London being the important financial centre that it is. So the likely candidates for auction will be retail operations in Spain, Belgium and Germany. These are profitable businesses, and given the drive towards banking consolidation, should fetch good prices, when banking assets are being bought and sold on historically high multiples. In total, the French government has pledged to sell Fr620bn of CL's assets. That leaves privatisation of the rest of the bank, which the French government pledged would happen by the end of October next year. A lock, stock and barrel sale to a foreign investor seems unlikely. In addition, whoever buys the bank has to deal with the staff. Around 4,000 of them went to Brussels recently to protest against privatisation plans. When Sir Brian Pitman, chairman of Lloyds TSB told the French press he "would love to buy" CL, he also made it clear that France would have to change its generous employment laws. Fat chance, Sir Brian. A more likely scenario appears to be a traditional flotation, with just a few core investors to maintain stability. Insurance company Allianz of Germany has already said it would like 10 per cent of CL. A couple more offers like that and the French government will be laughing - all the way to the bank.

PolyGram's cliffhanger

THE most ridiculous investments made by CL in its dark period was the purchase of a Hollywood studio, MGM. The investment turned sour, and the bank later sold MGM back to its original owner at a loss of pounds 700m. Although it was an Italian, Giancarlo Paretti, who purchased MGM with CL's cash, the acquisition was motivated partly by a French desire to beat the Americans in the big screen game. Now, seven years on, Hollywood may be about to swallow Europe's biggest cinema hope, PolyGram. Seagram's announcement last week that it was in talks with the Dutch media giant sent shivers down the spine of the defenders of European culture who gathered last week in Cannes for the annual film festival. Not least because the company was the European film industry's most vocal and powerful lobbyist in Brussels.

PolyGram has spent $1.2bn since 1991 on establishing Europe's biggest film distributor only to face the threat of it being bought by Hollywood. Seagram, after all, owns Universal Studios, which like most of Hollywood, is desperately searching for fresh talent. The likelihood is that Universal would simply absorb PolyGram. That would be a disaster for Europe and the renaissance of its film industry. PolyGram has financed a number of European hits, including Four Weddings and a Funeral and Bean which between them grossed around $500m, enough cash to encourage PolyGram to move on to bigger budget films including a planned $40m follow-up to Four Weddings. The film was popular worldwide precisely because it was "sooooo British". The popular corporate argument in the movie industry is that money has no nationality, so it doesn't matter who finances a film. I beg to differ. The paymasters will always, in the end, call the tune - albeit a theme tune. If Polygram goes to Hollywood, it's going to take lashings of lottery money for film franchises for the European and British film industry to recover from the loss.

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