EU threat to Credit Lyonnais rescue

THE European Commission said yesterday it might not rule on a new rescue plan for French bank Credit Lyonnais before the bank's 1996 accounts were closed unless it knew more about the plan.

A Commission spokesman told reporters that a letter would be sent to French representatives in Brussels requesting urgent information on the latest measures to restore the bank's long-term profitability.

In September, the Commission approved emergency aid of 3.9 billion francs (£442.5 million) for the troubled bank to avoid a half-year loss of some Ffr 1.1 billion, which could have called into question its viability.

But this measure, which softened conditions attached by the Commission in 1995 to a Ffr 45 billion restructuring plan, was approved only for the financial years 1995 and 1996.

The French government wants to extend the new conditions and plans a capital injection for the bank this year.

Credit Lyonnais own 53 per cent of Woodchester Bank.

Unless the Commission rules on the new measures before the end of March, when the State-owned bank closes last year's accounts its dire financial situation could again be exposed.

"(European Competition Commissioner Mr Karel) Van Miert had said that, ideally, the Commission would take a decision before the accounts are closed.

"We should have received the file before the end of the year and that's fine if we get it at the beginning of this year," the spokesman said.

But the French government has apparently shown little desire to keep the Commission informed of its new plans to restore the bank to health before privatising it.

More than three months after the urgent aid was approved, the Commission was still reading about the details in the press, the spokesman said. This was despite a letter requesting details, particularly on the capital increase plus the timing and arrangements for the privatisation.

The French daily newspaper Liberation said yesterday that Paris might be ready to provide Ffr 12 billion in recapitalisation being sought by the bank.

The Commission spokesman declined to comment on the figure but Mr Van Miert acknowledged in September that a considerable injection would be needed to solve the bank's problems in a durable way.

Credit Lyonnais has been helped by the French state for several years due to losses following reckless expansion during the past decade, which turned it briefly into Europe's largest bank.

In July 1995, the Commission approved with conditions a plan mainly ridding the bank of some Ffr 135 billion in loss-making assets which were transferred to a state-backed vehicle for a future sell-off or liquidation.

The Commission has said that if Credit Lyonnais had been left to post losses of Ffr 1.1 billion in the first half of 1996, it would probably not have been able to meet minimum solvency requirements and that the rating agencies would have downgraded its debt.