By James Langton

(January 12 – 16:50 ET) – A scandal seems to be brewing at French bank Crédit Lyonnais, according to an article in the latest issue of The Economist.

Scandal is nothing new to Crédit Lyonnais, the article states. It suffered losses on large loans to shady businessmen in the recession of the early 1990s. “The bank began to record huge losses—and to fiddle its accounts to disguise them.”

As a result of that scandal, the State-owned bank’s chief was fired by the French government, and replaced with Jean Peyrelevade.

Peyrelevade was brought in to clean up the bank for privatisation. But The Economist says, “Our investigation suggests that the bank may be embroiled in a new and even more embarrassing scandal, which implicates not only the former managers who have long been saddled with the blame for landing the bank in trouble, but also some active senior figures—including Mr Peyrelevade himself.”

The U.S. Department of Justice is preparing to issue criminal indictments, naming both Crédit Lyonnais and some of its managers. The Federal Reserve Bank of New York is deciding whether it should suspend Crédit Lyonnais’s banking licence.

The scandal involves Executive Life, a failed California-based insurance company. Crédit Lyonnais reportedly failed to disclose its direct involvement in taking over both the firm’s junk bond portfolio, which produced big profits for the bank, and Executive Life itself. “Documents obtained by the American authorities suggested that the bank had knowingly broken the law, both before and after Mr Peyrelevade became chairman in November 1993.”

The Economist says the scandal could sink Jean-Claude Trichet, governor of the Bank of France since 1993, who is already under investigation over his handling of Crédit Lyonnais. He has been named as a successor to Wim Duisenberg, president of the European Central Bank.