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Nye Lavalle
Regulators Warn France Against Protecting Bank

By NICOLA CLARK and JAMES KANTER
Published: February 1, 2008
PARIS — As numerous European banks considered whether to make a bid for Société Générale, reeling from a $7.1 billion trading loss, regulators in Brussels warned the French government Thursday against trying to protect the bank from foreign suitors.

“In previous banking cases, we made it quite clear that the government should not interfere by putting their national companies first,” Charlie McCreevy, the European Union’s internal markets commissioner, said Thursday through a spokesman. “The rules on free movement of capital and the legislation in place means that potential bidders must be treated in a nondiscriminatory way in the situation of cross-border takeovers.”

Mr. McCreevy was responding after several senior politicians went on the French airwaves Thursday to make clear that Paris would not stand by and watch Société Générale, weakened by the largest trading scandal in financial history, be wrested from French hands.

“The state will not remain just a bystander and leave Société Générale at the mercy of any predator,” Henri Guaino, a senior adviser to President Nicolas Sarkozy, said on BFM television.

Jean-Pierre Jouyet, the country’s European affairs minister, said during an interview with LCI television that France considered banking to be a “sensitive” sector of the nation’s economy.

“It’s normal that the public powers look at whose hands French money is in,” he said.

France has a history of butting heads with European regulators over shielding national champions from takeovers and bankruptcy.

In 2004, Brussels threatened to take France to court when Mr. Sarkozy, then the finance minister, bailed out Alstom, one of France’s heavy engineering companies. That fight ended when the two sides cut a deal to save the company. Last year, European Union authorities assailed the French government for shielding Gaz de France, a giant natural gas company, from a foreign takeover.

In 2004, Mr. Sarkozy engineered a merger of two French drug companies, Aventis and Sanofi-Synthélabo, to stave off a bid for Aventis by a Swiss rival, Novartis. In the early 1990s Paris swooped in to save the bank Crédit Lyonnais, at a cost of $20 billion to French taxpayers.

Société Générale’s huge losses, linked to the unwinding last week of tens of billions of dollars in unauthorized trades by a futures trader, Jérôme Kerviel, have damaged management’s credibility with shareholders and clients, stirring fears that a rival — French or foreign — could seize the moment to make a hostile bid for the bank.

France’s largest bank by market value, BNP Paribas — whose predecessor Banque Nationale de Paris made an unsuccessful grab for Société Générale in 1999 — is seen by many analysts as a natural buyer. But several other European financial powerhouses, including BBVA and Banco Santander of Spain, UniCredit of Italy and HSBC Holdings of Britain, are also considered potential bidders.

BNP Paribas confirmed Thursday that it was considering a bid, though a spokesman dismissed speculation that any offer was imminent. “Like everyone in Europe, we are thinking about what this situation means for us,” he said.

Analysts say the parts of Société Générale’s business that BNP covets most are its French retail banking network as well as its position — the current trading scandal notwithstanding — as an innovator and global leader in asset management and derivatives trading.

But BNP and Société Générale both have sizable investment banking businesses, and analysts said that a merger would probably result in significant and politically unpopular layoffs. The BNP chief executive, Baudouin Prot, has said repeatedly in recent years that the two banks’ overlap in investment banking was so large that combining with Société Générale would erode shareholder value.

That has prompted speculation that Société Générale could be broken up, and the investment banking arm possibly sold to another, potentially foreign, group.

At current share prices, the combination would have a market value of around $146 billion. That would easily make it the second-largest bank in Europe by market value after HSBC, which is worth around $177 billion.

Banco Santander is valued at $109 billion, followed by UniCredit at $96 billion.

European legal experts say that a merger of Société Générale and BNP Paribas would receive close scrutiny from Brussels.

In many cases, the European Commission lets national competition authorities review mergers if the companies involved do most of their business in a single country, like France.

But a merger involving Société Générale could be an exception because of the significant amount of business that banks of its size do overseas, and because of a danger of interference by the French government, said Sylvie Maudhuit, a partner with the law firm Howrey in Brussels.
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