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Non-Tech : Derivatives: Darth Vader's Revenge -- Ignore unavailable to you. Want to Upgrade?

To: Henry Volquardsen who wrote (103)	9/18/1998 9:26:00 AM
From: Worswick	Read Replies (1) \| Respond to of 2794

Did the French ever fix their banks up? I walked down 6th Avenue perhaps two days ago and noticed the "new" Credit Lyonnaise building. 75 floors of excellence I guess. It sure looks great and shiny. I remember when a "rogue" loan officer at CL lent Paretti something like $1.78 billion to buy MGM from the well oiled Kurt K. Ah, the ruminations of the recent financial past. The past as prolog here??? My best to you, Clark From the Esteemable Orlin Grabbe. ""Sovereign borrowers and private lenders must understand that incautious behaviour on their part will not necessarily be made good with public money." (Annual Report, Basle, 1996) But the Elysee palace and banks like Credit Lyonnais apparently haven't gotten the message. Credit Lyonnais expects a lot more state aid. As anticipated in "Credit Lyonnais and L.F. Rothschild Ready to Topple," the bank announced a small profit--of French franc 67 million (FF 67 million) for the past six months. This "profit" was obtained after the bank received FF 3.9 billion in taxpayer funds from the French government. Translation: Credit Lyonnais had a FF 3.833 billion loss in the past six months. Credit Lyonnais also said it would need "an injection of at least $1.54 billion to $1.74 billion" to meet the government's goal of privatization (Washington Post, Oct. 5, 1996). What does this mean? Well, it means the French government wants to get rid of this bottomless pit, and sell it to private investors. But investors are not about to buy something that has a negative net worth. (Would you pay someone fifty dollars to take over their $1000 debt obligation?) So the government will have to add capital to the bank to give it at least a zero net worth. And the bank is saying that $1.54 billion to $1.74 billion will do the job. This is somewhat smaller than the $2 billion in the red I reported in my previous post on the subject. But I am confident that my numbers are at least as accurate as theirs. The French newspaper Liberation asked "Should this Bank Be Saved?", and estimated the total taxpayer cost of past and future bailouts to come to about $29 billion. This is includes about $17 billion in losses that will eventually materialize from the transfer of bad loans to the Consortium des Realisations. Credit Lyonnais has had a long free ride. It took in loads of money laundering deposits from the Cali cartel and other sources. Then its managers invested in risky, prestige projects like MGM and the Chunnel project (the tunnel between England and France under the English channel). Credit Lyonnais used to be one of the largest banks in the world, based on assets. Based on capital, its negative net worth of about $2 billion now makes it one of the world's smallest. (Nine of the world's top ten banks, based on reported assets, are Japanese. The other one is a German bank, Deutsche, which has about $500 billion in assets, and ranks 7th.) Credit Lyonnais is now a Zombie. It only comes out at night, wearing dark glasses to protect its delicate eyes from muted street lights, in search of other people's money and the neighborhood Roulette table".