Credit Lyonnais sees U.S. firms relying on foreign banks.

Contrary to predictions by some observers that foreign banks will cut back on their U.S. lending in the face of renewed competition from U.S. banks, Credit Lyonnais executive vice president Robert A. Cohen said foreign banks will continue to play an important role in U.S. corporate finance.

"U.S. corporations that saw their banks leave them during the credit crunch found themselves in trouble if they didn't have European institutions to support them," he said.

An equally important reason why foreign banks will continue to play an important role in the U.S. economy is that banks like Credit Lyonnais have large worldwide networks that most U.S. banks don't have anymore.

Worldwide Operations

"Morgan and Citibank are the only two U.S. banks operating worldwide and Morgan is mainly a wholesale bank," he said.

As U.S. corporations internationalize their operations, he noted, they are increasingly relying on banks like Credit Lyonnais for services around the world.

"We're large, we're credible, and we operate in 85 countries," Mr. Cohen said.

"And we can offer banking services in St. Petersburg or a credit card in Brazil or make a loan to a local franchise or take night deposits."

As head of the U.S. operations of one of the largest banks in the world, Mr. Cohen has presided over a rapid expansion that has more than doubled the bank's business in the United States over the last three to four years.

Long Service

Mr. Cohen, 44, began his career with Credit Lyonnais in France 21 years ago after graduating from France's prestigious Ecole Polytechnique and obtaining a doctorate in economics and finance from the University of Paris.

Mr. Cohen joined Credit Lyonnais in New York in 1988 is senior vice president, deputy general manager, and treasurer for U.S. operations and was appointed to his current position in August 1989.

The banker said his main strategy is to develop broad relationships with the bank's corporate customers rather than simply lending.

|Value-Added Services'

"We want to build relationships to provide value-added services, not just buy assets" Mr. Cohen said

"Banks who only buy assets by participating in lending syndications wind up either not being able to pay for their capital or taking on abnormal risks," he remarked.

The new emphasis on improving profits and building relationships comes after a hectic growth the last few years.

Within the last several years, Credit Lyonnais has more than doubled its assets in the United States to $36 billion.

Jump in Commitments

That includes a more than fourfold rise in commitments to structured finance transactions to around $4.5 billion since 1990, an increase in average capital commitments in project finance deals to $2.3 billion, and a fourfold rise in interest rate swaps and options volume with clients to $24 billion.

Staff has also climbed sharply, and stands at around 700.

And although Credit Lyonnais worldwide lost money last year, U.S. operations are profitable.

On paper, the bank's return on equity, or the amount of capital Credit Lyonnais sets aside to back its operations in the United States, is currently running at around 20%, Mr. Cohen said.

Investment Banking Expansion

In addition to building strong relationships with large U.S. corporations, Credit Lyonnais is expanding its investment banking activities through Credit Lyonnais Securities, the bank's grandfathered securities company, and trading in derivatives and fixed income securities.

The bank has 80 traders in New York and plans to add another 16 this year, Mr. Cohen said.

U.S. asset securitization programs that convert corporate receivables into securities that are sold off to investors are also growing.

The bank runs around $5 billion in such programs in the United States and experience gained in the field is being transferred to France, where Credit Lyonnais has pioneered similar transactions.

Real Estate Presence

U.S. real estate lending operations, mainly refinancings, are also being expanded.

"We've developed real estate lending over the last three years and become a large player in a market where there are no large players left anymore," Mr. Cohen said.

"If you take a conservative approach, there are a lot of opportunities around," he added.

"What we don't believe in is financing real estate where there is no equity, no leases, and a huge loan is granted based only on optimistic forecasts."

Credit Lyonnais has recently underwritten a number of real estate refinancings and is currently working on around two or three more each month.

Mr. Cohen said that although the business has expanded recently, it still accounts for less than 2% of the bank's total assets in the United States and is unlikely to ever grow to more than 5% of these total assets.

Pitfalls of Risk

Despite his own bank's rapid growth, Mr. Cohen expressed some concern over current market trends.

High liquidity and investors' scrambling for higher yields are combining to create conditions in financial markets in the United States where returns on securities and loans may no longer adequately match the risks, he said.

"You have pension funds, insurance funds, and mutual funds coming into the market, and we're seeing a slide toward a kind of excessive liquidity," Mr. Cohen said.

"You have groups taking risks today which they are not accustomed to taking," he added. "I think it's dangerous."

Lack of Caution Seen

The banker cited a growing number of cases where companies to which Credit Lyonnais declined to issue senior debt because they were viewed as too risky easily raised the funding they needed on the equity or bond markets.

"We are rather puzzled by such cases," Mr. Cohen said.

"What is clear is that the people managing large amounts of money are taking risks that are far higher than the margins that are being offered."

Moving Cautiously

"There's been a huge decline in the risk-reward ratios in the U.S. market," he added.

Ranked as the eighth-largest bank in the world at yearend with over $350 billion of assets, Credit Lyonnais has around $36 billion in onshore and offshore assets in the United States.

The bank itself will remain conservative in a market which is less and less conservative, Mr. Cohen said.

"We make our own assessment of risks and we're moving very cautiously," the banker said.

He added that Credit Lyonnais from here on will only increase its assets in the United States if it can obtain a suitable increase in profits.

Major U.S. Player

The French bank is already one of the largest corporate lenders in the United States, with around $11 billion in commercial and industrial loans outstanding.

Its customers are mainly U.S. corporations with annual revenues of over $400 million.

Many of them are from specialized areas, such as the oil and gas industry, cable and telecommunications sectors, aviation, mining, paper and forest products, and hotels and real estate.

Much of the business Credit Lyonnais does with them revolves around leveraged and structured finance, leasing, and project finance.

The bank is also a major player in the fast-growing derivatives market and active in trading for customers and for its own account in foreign exchange and securities.Credit LyonnaisAt a Glance Headquarters ParisChairman Jean PeyrelevadeAssets $350 billionU.S. assets $36 billionU.S. generalmanager Robert CohenU.S.employees 631U.S. offices New York, Chicago Los Angeles, San Francisco, Miami, Boston, Dallas, Houston

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