The Wall Street Journal-20080201-Talk Intensifies Over BNP-s Possible Bid for Societe Generale

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Talk Intensifies Over BNP's Possible Bid for Societe Generale

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Investors bid up Societe Generale amid increasing talk that France's largest bank, BNP Paribas, could launch a takeover bid for the scandal-hit bank.

According to people familiar with the matter, BNP Paribas is holding internal discussions over whether to resuscitate long-standing interest in buying its Paris rival. "Like everyone in Europe, we're thinking about what this means for us," a spokesman for BNP said.

A spokeswoman for Societe Generale declined to comment.

Societe Generale's stock price rose 1.7% to 83.20 euros ($123.81). The stock has climbed 17% this week amid increased takeover speculation -- even though Chairman Daniel Bouton has said he intends to fight for the bank's independence.

If BNP decides to make a run at Societe Generale, that could raise the stakes as other European banks might decide to bid for the hobbled bank, even though some potential buyers are constrained by subprime- mortgage or capital problems.

Still, the time is ripe for a deal. Societe Generale's finances, reputation and morale are battered after the bank announced that months of risky futures trading by a low-level trader had led to a 4.9 billion euros loss, the biggest trading loss in banking history. Societe Generale's share price has fallen 40% over the past year, and it remains to be seen whether a planned 5.5 billion euros capital increase will be successful this month.

While the numbers could make many a global bank salivate, BNP Paribas is one of the few banks with the capital to do a deal. The bank on Wednesday posted a 2007 annual net profit of 7.8 billion euros, a record in French banking. Full-year revenue rose 11% to 31 billion euros.

BNP is among the few banks to have avoided major problems related to the U.S. subprime-mortgage crisis, which has resulted in billions of losses at other U.S. and European financial institutions. BNP said it had taken 589 million of write-downs to its credit portfolio and an additional 309 million of bad-loan provisions.

Various members of the French government have been vocal in discouraging a foreign bank to set its sights on Societe Generale, insisting that banking is a "strategic sector" that should stay in national hands.

If BNP goes ahead with a bid, analysts have projected that Societe Generale could fetch between 85 euros and 111 euros a share in a sale that would total nearly $51 billion.

But investors hoping for a quick deal could be disappointed. Societe Generale has launched an internal inquiry into how low-level trader Jerome Kerviel was able to skirt management controls and engage in such risky trading that he left the bank at one point with an exposure of 50 billion euros -- nearly twice the market capitalization of the institution.

Possible buyers may also want to wait until they see whether Societe Generale will be able to successfully raise the 5.5 billion euros it needs to put itself back on firm financial footing.

Moreover, a big social stumbling block that has thwarted a deal between Societe Generale and BNP in the past -- including when BNP tried to buy its rival in 1999 -- still exists.

Michel Marchet, a representative of the bank's CGT union, vows to fight any potential tie-up. He says overlap between the banks could lead to thousands of job cuts.