Moment of truth for Crdit Lyonnais

THE full horror of Franois Mitterrand's financial legacy to the French taxpayer finally became clear on Friday when Edmond Alphandry, the French finance minister, revealed that the state-owned Crdit Lyonnais had lost around £1.5bn in 1994, nearly double the previous year's figure. This came at the end of a week that had seen numerous leaks preparing the French public for a full revelation of the bank's woes, including an admission by Mr Alphandry of a "hole" in the bank's accounts of something over £6bn.

The figure still came as a shock, since the bank's new chairman, Jean Peyrelevade, had hoped that the losses could be sharply reduced. There was worse to follow. The bank is hiving off assets that stand on the books at £15bn into a separate company jointly owned by the bank and the French government - an admission that earlier provisions had been inadequate, since the new company will include the £5bn of property assets set aside for special treatment in the first rescue plan for the bank announced last year.

Nevertheless, the solution is an elegant one since it allows the government to pretend that it is limiting its aid to the stricken bank. This will probably be enough to satisfy Karel Van Miert, the European Competition Commissioner, even though the whole world and its banker knows that the French tax payer is going to have to continue to pick up the bill for many years to come as the true value of the assets is gradually revealed. The fall-out will also almost certainly include storms over plans by the bank to reduce its staffing levels and continuing pressure by the chairmen of other large French banks, who are complaining at the continuing support to the bank for Crdit Lyonnais.

In the meantime, blame is being spread everywhere, mainly on the bank's former chairman, Jean-Yves Haberer. The only exceptions are the real culprits, President Mitterrand - naturally enough, because he is known to be dying of cancer - and a system that affords almost unquestioned power to a handful of brilliant technocrats.

For the bank's mess is a back-handed tribute to the French way of doing things, and, more specifically, to President Mitterrand's total disdain for economic or financial reality; a scorn that led the French economy into near-disaster in the first two years of his presidency.

He wanted Crdit Lyonnais to grow into the biggest bank in Europe and appointed Mr Haberer to do the job. Because of the President's backing - and because Mr Haberer was the brightest of the bright, the extraordinary nature of his policies remained unquestioned for far too long. And when one particularly tenacious Gaullist deputy, Franois d'Aubert, did start a campaign for answers, it was dismissed as mere politicking.

Friday's press conference marked the end of the dream. From now on, CL will confine itself to ordinary banking activities and will sell off virtually all its scattered industrial holdings. These were at the very core of President Mitterrand's dream of a bank that could compete with the likes of Germany's Deutsche Bank, combining financial muscle and large stakes in strategic industrial sectors.

Mr Haberer not only had to invest in any sector that needed help, he also had to submit to the President's personal whims. He was, inevitably, a heavy backer of Bernard Tapie, friend of the President and "saviour" (in the short term anyway) of sundry bankrupt companies. The ordinary business loans became so notorious that the term "a client of the Crdit Lyonnais" has become synonymous with impending bankruptcy.

Mr Haberer's interpretation of President Mitterrand's international ambitions for the bank involved heavy investment in banking networks in Italy and Germany and attempts to get into the big time through loans to all sorts and conditions of people and enterprises, from Robert Maxwell to the ill- starred Health Care International hospital in Clydebank.

Even when Crdit Lyonnais followed other French financial institutions by investing heavily in Parisian commercial property at the height of the boom, it contrived its own uniquely unprofitable twists. Because CL was more than a mere bank, it was a symbol of French financial gloire, it could not write

down its property loans as early or as realistically as lesser institutions. Moreover, it lent to some particularly shady developers. Not surprisingly, one of the two judicial investigations launched by Mr Peyrelevade concerns a big property disaster in the centre of Paris - the other involves Mr Tapie, who has already had his home and its contents seized by the bank in a vain attempt to recover some of the money it had lent him.

Unmentioned at the press conference was the bank's most curious and most embarrassing investment: its ownership of two big Hollywood studios, MGM and United Artists. This was the result of an amazingly tangled story involving two Italian spivs, one of whom, Fioretto Fiorini, had close connections with the P2 masonic lodge, Silvio Berlusconi et al. He has been languishing in a Geneva jail for the past two years, leaving the bank to pick up the bill, not just for the film companies, but also for the biggest bankruptcy in Swiss financial history - a disaster that has already led to a diplomatic row between the Swiss and French governments.

Meanwhile, Crdit Lyonnais is committed to selling the studios by May 1997 to conform with American banking laws and is pumping in $200m (£126m) a year to make them saleable. Not even Mr Alphandry could explain away that little problem.