KEY POINTS:
The French Government has sounded out the country's two largest banks, Credit Agricole and BNP Paribas, to find out if they would be prepared to launch a break-up bid for Societe Generale, which last week admitted that it was the victim of a huge fraud, costing it ¬4.9
billion ($9.3 billion).
Paris is "petrified" that a weakened SG could fall to a foreign predator, with Italy's UniCredito and Spain's Santander rumoured to be weighing a ¬40 billion takeover bid.
Credit Agricole and BNP refused to comment on "market speculation" but well-placed sources in the French capital said that under plans being mooted within France's Finance Ministry, the two French banks would carve up SG, where the actions of lone rogue trader Jerome Kerviel rocked the French establishment and the world's financial community.
It is understood that Credit Agricole, the biggest bank in France, would take over SG's investment banking operations, while BNP would acquire the domestic branch network. BNP looked at a possible takeover of SG last year, but decided it was too big to swallow on its own. However, a break-up bid would be different, say analysts.
One observer says: "Last year's takeover of Netherlands bank ABN by a consortium consisting of Royal Bank of Scotland, Belgo-Dutch group Fortis, and Santander, illustrated that weak banks in Europe are no longer immune to foreign takeover. But in the case of SG, I think that the French political establishment would be very reluctant to let it go to an overseas buyer, especially in circumstances such as these."
Last year, politicians in Rome were furious when Paris blocked a move by Italian utility Enel to take over French rival Suez by engineering a merger between privately owned Suez and state-owned Gaz de France. The move illustrated the determination of President Nicolas Sarkozy to protect French business interests, while at the same time stressing the need for France to embrace the free market.
Sarkozy has also hit out at the growing influence of sovereign wealth funds, arms of national governments in Asia and the Middle East, which recently bailed out several US investment banks. The President said that he would prevent such funds from "aggressively" asserting their influence.
Kerviel, a 31-year-old Paris-based trader working in equity derivatives, defrauded the bank by concealing losses related to "bets" he took on future movements of the main European equities indices, such as the FTSE 100 and France's CAC 40.
Even allowing for inflation, the losses from the fraud hugely outstrip the £800 million that Nick Leeson cost Barings in 1994.
Daniel Bouton, SG's chief executive, said the bank was pushing ahead with plans to raise ¬5.5 billion of fresh capital to shore up the bank's balance sheet.
Shareholders are being asked to buy new shares as part of a deeply discounted rights issue.
- OBSERVER
