Nineteen years. That is how long the French State took to permanently extinguish the largest banking tab in its history: that of Crédit Lyonnais, whose near-collapse in the early 1990s led in 1995 to the creation of a disposal structure charged with absorbing around 190 billion francs of rotten assets. The debt would not be settled until 2014, leaving taxpayers with a bill estimated in the tens of billions of euros, depending on the calculation method used.
Key Takeaways
- A former European banking leader collapses under the weight of its risks
- An unprecedented financial arrangement defers the bill rather than bearing it immediately
- The true cost of the rescue remains debated, between €9 and €20 billion
A Public Bank on the Brink of Collapse
At the end of 1993, Crédit Lyonnais was not like other banks. It was the leading European banking group by total assets, with more than 71,000 employees, and the French State was the majority shareholder with 55% of the capital and 76% of voting rights. A striking size, but a balance sheet hiding a time bomb. Under the leadership of Jean-Yves Haberer, the institution embarked on an aggressive expansion policy: risky industrial holdings, aggressive real estate exposures, and international growth conducted without sufficient safeguards.
The wake-up call was brutal. In 1993, Crédit Lyonnais published a deficit on its accounts and posted historic losses of 6.9 billion francs; the value of its industrial participations reached 52 billion francs versus 9.7 billion in 1988, and its real estate portfolio totaled 100 billion francs. An initial rescue plan attempted to patch the gaps, but proved quickly insufficient. Two years later, the new auditors estimated that the adverse evolution of major holdings, the deterioration of the real estate market, and the lack of profitability of certain subsidiaries required a provisioning effort on the order of 50 billion francs. The bank could no longer cope on its own.
The CDR, or the Art of Separating the Good Bank from the Bad
That is where the financial arrangement that would mark public finances for nearly twenty years came into play. The creation of the Consortium de réalisation was laid out by a protocol signed on April 5, 1995 between the State and Crédit Lyonnais, to prevent its bankruptcy and a major banking-system crisis. The principle, technical but clear once explained: separate the “good bank” from the “bad bank” to purge Crédit Lyonnais’ balance sheet and spare itself any direct recapitalization effort for the institution.
In concrete terms, the CDR purchases from Crédit Lyonnais an enormous portfolio of doubtful receivables, compromised industrial participations, and depreciated real estate assets. The CDR is intended to buy from Crédit Lyonnais about 190 billion francs of assets, to which 55 billion francs of liabilities are attached, i.e., 135 billion francs of net assets. To finance this operation without imposing an immediate burden on the State budget, a three-tier structure was devised: the Public Establishment for Financing and Restructuring (EPFR) lends to the CDR enough to pay for these assets, in the form of a participatory loan whose maturity is set for December 31, 2014. This date, chosen from the outset, would become the true horizon for exiting the crisis.
The bank’s former president himself had not hidden the political calculations behind this choice. Instead of an immediate expense, namely a capital increase of around 25 billion proposed by the Treasury, the segregation arrangement allowed nothing to be paid right away and spread over twenty or thirty years the amortization of a balance to be financed. One defers the pain rather than facing it all at once. A classic of banking-crisis management, but rarely on such a scale in France.
Fifteen Billion Euros, and Much Debate about the Final Bill
How much did this operation actually cost the French? The answer depends on who counts, and when. In its public report of December 2000 titled The State’s Intervention in the Crisis of the Financial Sector, the Cour des comptes conducted a balance-sheet assessment of the State’s involvement in rehabilitating Crédit Lyonnais and estimated the cost at around €20 billion. A figure to nuance: this result did not account for the proceeds of the 2002 sale of the State’s residual stake in Crédit Lyonnais, i.e., €2.2 billion.
Other evaluations, conducted later, refined the calculation downward. Taking into account the Executive Life dossier, the total net cost of the deleveraging for the State was estimated between €9 billion in 1994 value in terms of present value and €14.3 billion in undiscounted terms. The Executive Life case, named after an American insurance company purchased under contested circumstances, would remain one of the costliest and longest-running disputes to settle, alongside the Adidas-Bernard Tapie affair, also managed by the CDR.
The closing word, or nearly, goes to the daily press. As the State prepared in 2013 to borrow the final funds needed to close the file, the total rescue of Lyonnais was tallied at €14.7 billion, i.e., an average bill of €223 per French person or €812 per taxpayer. A figure that roughly matches the €15 billion often cited since. The Cour des comptes had not remained silent during this long wait: it warned in a late-2010 note that the EPFR debt, then €4.4 billion, “should be amortized progressively, without waiting for 2014.” A warning that had no immediate effect, the government of the time leaving the file to its successors.
A Rescue That Also Paid Off
Not all of the story is that of an endlessly deep abyss. The privatization of Crédit Lyonnais in 1999 proved better than expected: it occurred on the basis of a value of 48 billion francs for 100% of the capital, whereas several independent experts had estimated in autumn 1998 a value of only 36 billion francs, and the net proceeds from the sale totaled 34.5 billion francs. That was enough to limit the damage, though not erase it.
The lesson goes beyond the Lyonnais case. Twenty years of containment, a uniquely complex financial arrangement, tens of billions of euros mobilized in the end: the banking crisis of the 1990s permanently shaped how the French State now manages troubled institutions, with heightened vigilance over the risky stakes of public banks. A precedent that European regulators, chastened, have never entirely forgotten since.
Sources: senat.fr | eur-lex.europa.eu | assemblee-nationale.fr
