Rivals Eye SocGen Buy-Out

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Meigneux / SIPA

Board of Societe Generale met today to decide the fate of Bouton as fellow French bank BNP Paribas ducked questions on whether it would bid for it's wounded rival.

Speculation is rife in France that the board of directors at scandal-rocked Société Générale decided to retain embattled CEO Daniel Bouton only to allow him to do the one thing he's spent a decade avoiding: preparing the bank for acquisition by a hostile rival.

Following their meeting Wednesday, board members said they had rejected Bouton's resignation in order to preserve stability while the bank is still reeling from the $7.13 billion loss resulting from derivative trader Jérome Kerviel's illicit futures speculation. Many cited Bouton's storied record of fiercely defending Société Générale's independence in the past. But even before that day had ended, the general surprise that greeted Bouton's survival gave way to anticipation that he'd been kept aboard as the best-placed expert to chose the best among several anticipated suitors for the tarnished and shaken institution.

First among those expected callers is BNP, France's largest bank by capitalization, which on Thursday confirmed it was considering, "a run at Société Générale" — though just "like all of Europe". The mere rumor of a possible buyout sent SocGen share prices up nearly 11% during trading Tuesday. The feasibility of a BNP offer — or hostile raid — further increased on Wednesday, when it announced 2007 profits of over $11 billion. But BNP is hardly the only player contemplating exploiting Société Générale's troubles to acquire it at a bargain price. French bank Crédit Agricole is also reportedly studying a take-over bid, as are Italian rivals UniCredit, Anglo-Chinese HSBC, along with a few others.

Concern over a potential bid drove hundreds of the bank's employees to the streets Thursday to demonstrate their determination to preserve its — and thus, they hope, their jobs. But given the apparent interest by competitors in acquiring the bank — and the enduring fallout over how the bad trades could occur over months — some observers are now convinced the eventual purchase of Société Générale is just a matter of time.

"Virtually every time there's been a major traumatic episode at a bank or financial institution, the final page has ultimately been turned with the company being bought out," notes Jacques Mistral, head of economic research at the French Institute of Foreign Relations in Paris. Despite that record, Mistral says he doubts that Bouton is staying on specifically to prepare Société Générale's sale. "Everyone there is still fully focused on surviving this scandal — the here and now," Mistral argues. "When the time comes where it's inevitable Société Générale's must either merge with a partner or be taken by force, Bouton will certainly leave. He'd never accept that."

Indeed, since taking Société Générale's CEO post in 1997, Bouton has fended off several takeover bids. The most notable effort came in 1999, when BNP sought to buy Société Générale in an attempted three-way merger with French bank Paribas. Bouton's defensive maneuvers to prevent that were strengthened by labor stoppages by bank employees, many of them shareholders, whose support of Bouton since the Kerviel debacle has been solid. Despite that collective determination, Mistral says Société Générale's hostility to mergers has become a handicap in a sector where growth and geographical expansion via consolidation is the rule. That position, Mistral continues, means Société Générale has "always been viewed in Europe as being perched on the edge of a cliff, and with very little doubt it will be pushed over the side at the end of this episode."

BNP's coy comments Thursday on its contemplation of Société Générale, according to Mistral, increases the likelihood of a more complex acquisition scheme: the break up of Société Générale's retail network, which BNP covets, from investment banking activities, which interest Crédit Agricole. By tipping its hand, Mistral notes, BNP may be signaling to rivals now mobilizing in the wake of the debacle that it's about to launch a bid it had contemplated even before the Kerviel affair. Meanwhile, comments by French officials indicating the government would step in and prevent foreign "predators" from exploiting the Société Générale fiasco drew fire from European Union authorities. Mistral suggests that BNP's shot across the bow was a boon for the government: "by signaling to rivals abroad that French banks are already on the case, BNP saves President (Nicolas) Sarkozy and his advisors the trouble of noting that foreign suitors need not apply."