THE French finance ministry yesterday denied a report that it was considering selling a 20 to 25 per cent in state owned Credit Lyonnais.

"The privatisation of Credit Lyonnais is not on the agenda," a spokeswoman added.

The report said the government, which is in talks with the bank on its financial future, was considering the sale partly as a way of persuading the European Commission to accept changes to a recent state bail out plan which are now seen as inevitable. The bank itself declined all comment.

Nonetheless, chairman Mr Jean Peyrelevnde is in talks with the finance try about the bank's finances and the pace of restructuring amid mounting speculation that the bank is far from safe after historic losses of 12 billion francs (£1.4 billion) in 1994.

The government had to fight tooth and nail to win approval last year from Brussels - which can veto state subsidies under rules on safeguarding free competition - for a rescue package worth an estimated 45 billion francs.

To clinch the approval it had to promise that the bank which went on a Europe wide spending spree in the 1980s would divest itself of 35 per cent of its European assets by 1998.

It was this spree which made it the largest bank on the continent in terms of assets. The French bank also has a 53 per cent share in Irish leasing group Woodchester.

The biggest asset disposal so far was the sale this month of the MGM Hollywood studios to Mr Kirk Kerkorian and Mr Frank Mnncuso for $1.3 billion (£783 million).

The complex rescue plan arranged by the government involved spinning dodgy assets worth 135 billion francs off into a state holding company which would in turn borrow from Credit Lyonnnis while a gradual sale of the assets was carried out.

It turns out that the cost to Credit Lyonnais of refinancing this loan is around 2.5-3.0 billion francs a year and, analysts say, is a weight around the bank's neck which it may want the government now to take over.