France Still Hopeful on Executive Life Settlement

December 8, 2003

Despite the apparent deadlock in negotiations, French Finance Minister Francis Mer expressed continued hope that the parties in the Executive Life Affair could still reach an agreement.

Interviewed on the radio station France Inter this morning, Mer reiterated the government’s position that it was still willing to reach a compromise with federal prosecutors in L.A. to settle the pending criminal charges against Credit Lyonnais (CL) and others. The bank, Altus Finance Artemis S.A. and its owner Fran├žois Pinault are all accused of involvement in violating state and federal laws concerning the 1991 take over of the failed Calif. life company and its junk bond portfolio.

The sticking point, as Mer recognized, is what scope any eventual acgreement might take. The French government wants a global accord that would include Pinault and his company as well as CL’s former head Jean Peyrelevade, and would also address the civil complaints that have been filed. The AG’s office has so far refused to agree to such a far reaching settlment.

The political nature of the charges has made compromise difficult. From the French point of view – why settle only the criminal charges, while leaving all the parties, including Pinault, a close associate of French president Jacques Chirac, open to the prosecution of a civil complaint seeking recovery of several billion dollars.? From the AG’s point of view, the civil case is a matter outside their jurisdiction, and they want a guilty plea on the tacitly admitted federal law violations in exchange for a fine and the promise to create a fund to reimburse policyholders at some future date.

Asked on French TV if he had influenced the government’s decision to reject the previously negotiated accord, Chirac gave a simple “non,” but few people in France are convinced that he hasn’t at least signalled his ministers of his concerns over Pinault. He has another problem as well. Representatives in the Chamber of Deputies (France’s lower house) have already begun to question why the government doesn’t settle for an agreement that, although it could end up costing French taxpayers half a billion dollars, would avoid the possibility of a $2 to $3 billion payment in the future.

Editor’s Note:
The French government would not be directly responsible for paying any fines or making any deposits on behalf of CL or other parties in the case. However it could well end up paying the lion’s share of any recovery indirectly.

CL, whose name ironically means “lion,” ran up huge debts when it went on an acquisition spree in the late ’80’s and early ’90’s. The government was forced to bail it out. To do so it established the Consortium de Realisation (CDR), a group of private investors, to assume the bank’s huge debt burden, as part of a general restructuring, and to further a public sale of CL shares.

It was originally set up to sell off and liquidate some 15 billion euros ($19 billion) in CL debt. Its obligations are now estimated at around 10.8 billion euros ($13.7 billion), but the government guarantees the payments. The financial institutions who are the private investors in CDR, could well claim that the Calif. lawsuits were not included in the debts they agreed to manage, leaving the government holding the bag. It would then have to come up with sufficient funds to satisfy the judgment(s). As these funds would come from general revenues, i.e. taxes, French taxpayers would end up footing the bill, which makes the whole issue even more political than it already was.

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