PARIS - French banking giant BNP Paribas said on Wednesday it had dropped any idea of a bid for Societe Generale, another leading French bank rocked earlier this year by the biggest-ever rogue trading scandal.
Analysts said Societe Generale was now highly unlikely to attract alternative bidders, domestic or foreign, at least until the crisis on financial markets subsides and the troubled French bank has published first quarter results.
"Given persistent rumours (of a bid), BNP Paribas wants to make clear that it is no longer looking at proposals for a tie-up with Societe Generale," BNP Paribas said in a statement.
"The conditions allowing a value-creating operation for shareholders are not in place," it added.
BNP Paribas had revealed at the end of January that it was looking at Societe Generale after its rival announced trading losses of 4.9 billion euros (7.7 billion dollars) arising from allegedly unauthorised trading for which one of its traders, Jerome Kerviel, is being investigated.
There was speculation at the time that the French government would favour a takeover by BNP Paribas to head off any foreign bid.
The BNP announcement cheered investors in Paris, where BNP Paribas jumped 4.65 percent to close at 60.76 euros on a weaker overall market.
SocGen shares, in contrast, tumbled as 7.07 percent to finish at 64.49 euros as BNP's statement removed the most frequent source of bid speculation.
"BNP are right to give up on this," one Paris-based dealer commented, asking not to be named.
"They must have realised it was killing their share price and that, given the major overlaps in the two groups' businesses and the current economic environment, there's no point taking the risk," he commented.
Oddo Securities, a brokerage, cited overlaps in corporate and investment banking, major execution risks and the fact that the merger would be unlikely to generate profits in the first five years.
One major barrier to a BNP-SocGen tie-up was the prospect of major job cuts in French retail banking, which would have created strong opposition from unions and politicians, analysts agreed.
"As we thought since the beginning, the conditions for a takeover of SG by BNP were not in place," Odoo Securities said in a note to its clients.
Analysts also gave short shrift to the idea of any bank making a move for SocGen in the immediate term.
"There is no bank at the moment that is able to bid for SocGen," said an analyst at German bank LBBW, Ingo Frommen, stressing that "all the banks have to keep money in their pockets."
"As long as the (financial) crisis goes on, I don't expect a bid for SocGen," agreed another sector analyst.
Credit Agricole has been cited as an option for the domestic solution sought by the French government, with rumours circulating about either a full takeover bid for SocGen or a carve-up in conjunction with BNP.
The other domestic solution touted in recent weeks, namely a tie-up with state-owned Banque Postale, has been rejected by finance minister Christine Lagarde.
Market watchers also dismissed the idea of a short-term bid for SocGen from Italian peer Unicredit, which last year held tie-up talks with the French bank.
"Speculation had focused on Unicredit but it has said it's going to concentrate on Capitalia first," the dealer argued.
Unicredit merged with Capitalia on October 1.
Of the other rumoured candidates, Intesa Sanpaolo has already ruled out any offer for SocGen, while Banco Santander has said it is definitely not interested.
In addition to awaiting an improvement in market conditions, market watchers argued, any future bidders for SocGen will likely also hold fire at least until after the bank reports first-quarter results.
"I think now SocGen's published its (full year) results, any candidates are going to sit back and see how it gets on for the next couple of quarters at least before making a move," the dealer commented.
"1Q08 results are likely to be on the weak side ... which could renew speculation on a potential friendly link," KBW analysts said in a note to clients.
Societe Generale last month raised 5.5 billion euros in fresh funds to cover the trading losses and restore confidence in its balance sheet.
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03/19/2008 17:19 GMT