To The Rescue Of Credit LyonnaisStewart Toy
In his trademark sleeveless sweaters and with half-frame glasses dangling from his neck, Jean Peyrelevade looks more like a rumpled country schoolteacher than the head of the world's biggest bank outside Japan. The low-key boss of France's Credit Lyonnais hardly seems the man to seize a client's furniture. Yet Peyrelevade stunned France in late May by sending gendarmes to impound the possessions of Bernard Tapie, a businessman and politician--and a Lyonnais borrower for 20 years. The bank says Tapie defaulted, a charge he denies.
The brash move by Peyrelevade did more than tie down $50 million worth of Tapie's assets. The seizure also broadcast a message: Credit Lyonnais, the ill-starred giant of European banking, is changing under the leadership of Peyrelevade, who succeeded the ousted Jean-Yves Haberer last November. Whether or not politics led the state-owned bank to fund Tapie and other pals of France's Socialist rulers, Peyrelevade is eager to show that, from here on in, Lyonnais must be run as a profit-driven outfit like any other.
The new chairman must do far more than launch headline-grabbing asset seizures, however. In salvaging his monumentally troubled bank, Peyrelevade, 54, faces a task arguably tougher than John S. Reed's struggle to save Citicorp--the disaster bank of the 1980s. Size alone puts Lyonnais in a different league: Its assets of $350 billion top those of Citi and Chase Manhattan Corp. combined. Its U.S. operations make it one of the 25 largest banks in America.
BIG BILL. The reason for a sense of urgency is that Lyonnais is reeling from the aftershocks of a dizzying growth spurt under Haberer. Dubbed "the Napoleon of French banking," the former chairman bought banks around Europe at high prices, plunged into U.S. corporate lending, and bought big equity stakes in French companies. He also threw money at an all-star cast of shaky clients: the late Robert Maxwell, bankrupt developer Olympia & York Developments Ltd., and Italian financier Giancarlo Parretti. But global recession halted Haberer's expansion binge, as losses and bad-debt provisions soared (charts). The bank financed Parretti's ill-fated takeover of Metro-Goldwyn-Mayer Inc. in 1990, for example, and is now the troubled studio's reluctant owner, with $2.3 billion in exposure.
As his empire collapsed, Haberer was exiled to a smaller state-owned bank last fall, leaving a big bill for French taxpayers. Haberer declined to be interviewed. But under a bailout that Peyrelevade engineered in March, the state is taking over $7 billion in risky loans and will hand Lyonnais $850 million in new capital. Now, Peyrelevade, a veteran financial executive and onetime government official, is plotting a recovery strategy to prepare the bank for privatization. To make the bank's shares attractive to investors, the new boss must figure how to turn a profit from Europe's largest banking network: 3,750 branches, of which 1,000 are outside France--mostly the results of pricey Haberer acquisitions.
Peyrelevade is also shaking up management. He has eased out a dozen top colleagues. Latest to go, in mid-May, was the executive vice-president who oversaw MGM, Franois Gille. This month, a key new hire comes aboard: Pascal Lamy, the forceful top lieutenant to European Commission President Jacques Delors. Lamy won't have a specific job at first. Peyrelevade says he'll spend several months "walking around and looking at things"--an ominous prospect for the bank's 71,000 employees.
Indeed, with overhead at Lyonnais eating up 70% of the bank's revenues--at least 10% more than at many international banking competitors--10% of the bank's jobs in France and 4% of those elsewhere in Europe are likely to go.
One last element of Peyrelevade's strategy is his hope of selling at least half of Lyonnais' $11 billion industrial portfolio (table, page 116). Losses from those investments, especially steelmaker Usinor Sacilor, helped ruin the bank's bottom line last year. Says Peyrelevade: "It's incomprehensible that a bank should own a fashion house, a hotel chain, a golf club, and an airline."
COZY CABAL. Such talk would have been heresy in a state-owned French bank a few years ago. In a way, Peyrelevade's makeover of Credit Lyonnais is a metaphor for France's search for a new version of Gallic economics. The French have always seen capitalism as a cozy cabal of cross-holdings and mutual back-scratching, often orchestrated by the state. Banks frequently prop up Air France, Aerospatiale, and other cash-hungry symbols of national pride. But the high cost of misdirected resources is forcing France to change course. Although dirigisme is far from dead, the French are privatizing a score of banks and industrial companies and are preaching competitiveness.
Credit Lyonnais symbolizes this shift--and so does its chairman. As a top aide to a Socialist Prime Minister, Peyrelevade played a major role in nationalizing industry after the 1981 election of President Franois Mitterrand. He still terms himself a "man of the left," but, like most other French Socialists, he has changed his spots
Peyrelevade's struggle to rebuild France's troubled bank also carries heavy meaning for Europe's vision of economic unity. Efficient trans-European financial-service networks were supposed to be a key result of the vaunted single market. But lots of banks have jumped borders--and then jumped back in the face of entrenched competition and high costs. Chase Manhattan, Lloyds Bank, and Banque Nationale de Paris have pulled back, and in May, Britain's National Westminster Bank PLC shuttered its 10 Paris branches. Few expect Peyrelevade to succeed, either. "Retail banking doesn't look very tempting," says Deutsche Bank chief Hilmar Kopper.
Indeed, one credit-rating service official estimates that Germany's BfG Bank, which Haberer bought 18 months ago for $900 million, has already produced as much as 20% of Lyonnais' bad-loan provisions. But Peyrelevade steadfastly defends his concept of a McDonald's-style Eurobank with a single name and uniform products in every country. "If you believe in a single market and a single money, as I do," he says, "banking in Frankfurt will be no different from banking in Paris. Retail banking is where we'll make money in Europe."
POKER-FACED. It's not as if Peyrelevade wanted to leap into the maelstrom at Lyonnais. When the conservatives moved to oust him from the chairmanship of France's biggest insurer, Union des Assurances de Paris (UAP), and install one of their own, Peyrelevade fought to stay on. His bid failed, but the conservatives gave him Lyonnais as a consolation prize. Earlier, in 1986, politics had got him fired once before, as chairman of Compagnie de Suez.
Despite Peyrelevade's Mediterranean origins--his father was a Marseilles schoolteacher--he is as poker-faced as a sphinx. "He never ever gets angry--and he hates anger in others," says one associate. A French executive recruiter goes further: "He's unbelievably cold. It takes a lot for him to crack a smile." Yet Peyrelevade speaks candidly, and, in contrast to the aloof Haberer, is a collegial manager who solicits others' opinions. Sober in his tastes, Peyrelevade was shocked at the luxurious dining room Haberer installed at Credit Lyonnais, says an aide. He is so unconcerned with fashion that legend has it he buys his unstylish suits from a mail-order catalog and has his wife knit his sweaters. In his free time, Peyrelevade scours auctions collecting 19th century copies of Renaissance furniture. Originals are too expensive, he says.
Calm though he may be, one subject gets a rise out of Peyrelevade: the investigation of Haberer's costly lending policies, launched in May by France's Parliament. The probe, which is being conducted in secret and could last six months, has been demanded for years by Franois d'Aubert, a centrist member of Parliament who smells Socialist favoritism behind Lyonnais' lending. Parretti and the bank also have counter-sued each other repeatedly. In March, the Italian filed a $3.9 billion suit charging that Lyonnais fraudulently removed him from MGM management. Lyonnais denies the charge.
Although Peyrelevade admits his turnaround effort may produce even more unhappy surprises, he expects to break even this year and report a profit by 1995. If market conditions permit, the chairman is expected to sell to the public an $850 million equity stake late this year, "to prove people think the bank has a future." But full privatization is unlikely before 1997--the year Peyrelevade expects an "acceptable" profit of $525 million to $700 million.
One prong of Haberer's strategy that needs no fixing is the bank's booming U.S. corporate-lending unit. A high-profit money machine, it competes aggressively with American banks for domestic loans. It was the eighth-largest U.S. loan syndicator in this year's first quarter, beating Chase Manhattan and all foreign banks except Bank of Nova Scotia. The unit's assets grew 6% last year, to $37 billion--11% of Credit Lyonnais' world total.
Lyonnais has also profited nicely from its $1 billion-plus investment in New York dealmaker Leon Black's Apollo Partners. After making a bundle buying distressed junk bonds and real estate, Apollo is now attempting to raise a further $1 billion. But some observers see that as a sign that Black, concerned that Peyrelevade's interest in Apollo's activities will diminish as he concentrates on lending in Europe and the U.S., is now seeking other backers. Lyonnais insiders insist that the bank will maintain its links to Black, but a source says the bank probably won't join the latest offering.
Peyrelevade has a lot of refocusing to do throughout his domain. His quest to give Lyonnais a new sense of direction may be as big a struggle as squeezing old-style French capitalism into a free-market mold. Peyrelevade's sober, feisty style might do the trick--providing a model that both France and Europe need. With luck and strong management, he might turn Haberer's Napoleonic dreams into reality. But it's clear he'll have more trouble facing down the great banks of Europe on their home turfs than sending gendarmes after errant debtors.
TABLE: CREDIT LYONNAIS' CROWN JEWELS Credit Lyonnais Chairman Jean Peyrelevade says he'll sell $11 billion worth of choice assets to raise capital for his troubled bank. Here is a roster of its more valuable holdings: Company Industry Percent of equity held MGM Entertainment 100.0% FNAC Retailing 66.0 ARNAULT Luxury goods 29.5 USINOR SACILOR Steel 20.0 ADIDAS Sportswear 19.9 AEROSPATIALE Aerospace 18.0 BOUYGUES Heavy construction 10.0 RHONE-POULENC Chemicals 6.0 TOTAL Oil 3.4 LAGARDERE Publishing, defense 3.0 DATA: CREDIT LYONNAIS, BUSINESS WEEK