Chairman Jean Peyrelevade said 1998 group net profit was 165 million euros ($181.4 million), up from 54 million euros in 1997, a recovery due mainly to a strong performance in its domestic retail market. "We have continued to improve our performance despite the international crisis," he told a news conference. He forecast further gains in profitability in 1999, but gave no details.

Not including a special dividend and before minority interests, net profit rose 41 per cent to 398 million euros from 282 million euros in 1997. The special 48-million-euro dividend payment is one that the bank has to make to the government under the terms of the EUclearance for its bailout.

Net banking income was down 5 per centto 6.69 billion euros, following the sale of a number of Credit Lyonnais's smaller foreign subsidiaries over the past year. The downside came in the bank's business outside France, notably in emerging markets, for which it set aside 1.30 billion euros in provisions, compared with 1.23 billion euros in 1997.

The bank's investment certificates ended down 35 cents at 38.65 euros, broadly in line with the lower market trend.

Possible Cooperation Deals

As the bank prepares for its privatization later this year, Peyrelevade confirmed that his bank has held talks with a number of other banks and insurance companies, including Mellon Bank Corp. of the US, about possible cooperation deals. However, Peyrelevade stressed that the choice of who will obtain stakes in a privatized Credit Lyonnais lay with the French government.

The government published a decree earlier this month laying out a plan to sell 33per cent of the bank to a group of institutional investors, none of which will hold more than 10 per cent of the bank's equity, but all of whom must forge some form of cooperative venture with the bank.

In addition to Mellon, a number of French and foreign companies have declared their interest, including Caisse Nationale du Credit Agricole and Allianz AG in Germany. Claude Bebear, chairman of French insurance giant AXA, said Thursday that he too was keen to take a stake.

"We will participate if the government is willing and the price is right," he told a news conference held to announce AXA's earnings.

Favorable Battle

Peyrelevade said he considers the battle which has recently erupted between two of Credit Lyonnais's main rivals, Banque Nationale de Paris and Societe Generale, could help his own bank's privatization. "Ironically, people now consider us as the most stable of the French banks," he said. Earlier this month BNP launched an unsolicited takeover offer for Societe Generale andParibas SA, disrupting their friendly merger which was already under way.

Since Peyrelevade took over at Credit Lyonnais in 1993, with a mission to restore the floundering bank's fortunes, the bank has shrunk considerably. Its balance-sheet total today is 22 per cent less than in 1994, and its headcount is down by 33 per cent. Under the conditions set by the European Commission in allowing a state-sponsored bailout of the bank, Credit Lyonnais had to sell a substantial number of assets and reduce its size outside of France. Peyrelevade said Thursday the bank is currently in negotiations to sell its 50.1 per cent stake in BfG Bank AG of Germany, but he declined to identify the other party, and stressed that under the terms of the bailout agreement, Credit Lyonnais can wait until the end of 2000 to complete the sale.