Time runs out in French bank saga

News Analysis: CGU sets scene for cliffhanger climax as SocGen and Paribas shareholders prepare to vote

AFTER SIX months of Gallic banking soap opera, it is only appropriate that CGU has provided a classic Anglo-Saxon insurance cliffhanger.

Yesterday's intervention from Britain's biggest composite insurer suggesting it would secure a 10 per cent blocking stake in Societe Generale to protect its own interests adds yet more confusion, for the time has finally arrived for shareholders in Societe Generale and Paribas, the two banks at the centre of France's titanic bid battle to make up their minds. They now have yet another factor to consider which of the two diametrically opposed visions of the future for the French banking industry to back. Rarely in any bid battle could the choices or the outcome have seemed so finely balanced. Nor could so much have been at stake.

Success for Michel Pebereau, the chairman of Banque Nationale de Paris who set the cat among the pigeons in March when he gatecrashed the SG Paribas agreed deal with a dramatic 38bn euro bid to create France's Lloyds TSB, could have dramatic implications not just in France but for the banking industry worldwide. Not only will he have turned on its head the conventional wisdom that it is impossible to get away with a hostile takeover bid in the financial sector, but he will also have succeeded in opening up to Anglo-Saxon shareholder capitalism, the last bastion of post-war corporatism.

But since each of the two sides has the power to wound the other but neither packs the punch to deliver a knockout , the outcome is anything but certain. Sheila Garrard, French banks analyst at Lehman Brothers, believes that the most likely scenario is that BNP ends up with more than 50 per cent of Paribas but only a large minority stake in Societe Generale. In that case, it will be up to Jean-Claude Trichet, the pro-free market Governor of the Bank of France, to try once again to pressure SocGen into doing a deal with BNP, "for the greater good of France".

Although BNP has no desire to take over Paribas, having only bid for the bank because arcane French takeover rules require him to, Mr Pebereau will have killed off its plans to merge with SocGen, leaving the latter bank vulnerable and therefore more amenable to pressure to ditch its erstwhile partner and throw in its lot with Mr Pebereau's BNP.

This has been an extraordinarily messy and confusing struggle. Mr Pebereau has more than once in this affair been caught by his advisors musingabout how much better this would have been if fought under clear UK-style takeover rules. Instead, we have had a battle with too many rules, many of them apparently invented on the hoof by a plethora of regulators all vying for their place in the sun.

Over the past week, as the deadline looms, SocGen and Paribas have been piling on the pressure, by forcing shareholders friendly to their cause to come out publicly. So far, shareholders accounting for some 40 per cent of SocGen's capital have spoken out in favour. But many of them are French corporate entities like Pernod Ricard and Alcatel, who are bound by cross-shareholding arrangements which oblige them to support management. There is also a 12 per cent block owned by SocGen's employees who fear a takeover by BNP would lead to mass sackings, whatever BNP says about its intentions, and back management's preference for the SG Paribas merger deal.

Most soundings suggest that the international shareholder base, most of which is made up of either UK funds or US money managed out of London and which accounts for 40 per cent of the shares of all three banks, has been overwhelmingly in favour of BNP from the start.

SocGen and Paribas deserve some credit for having fought a good fight. What started out as a pretty transparent stitch-up to protect the position of Paribas chairman Andre Levy-Lang, has been honed with the help of teams of expensive bankers from Morgan Stanley and Merrill Lynch into a coherent merger scheme which aims to cut 1bn euros of costs and return substantial slugs of cash to shareholders in the coming years.

BNP is offering to do better - 1.27bn euros of savings. But some of the contradictions in its proposals which BNP had hoped to gloss over have not stood the test of five months of investor scrutiny as Mr Pebereau might have hoped. His attempts to pose as cost-cutting butcher when in London and New York while offering job guarantees to employees in France have come partly unstuck.

Investors have assumed that his talk of maintaining both the BNP and SocGen brands alongside each other is a short-term public relations ploy to be ditched when government and unions are looking the other way. In which case the savings would be much greater. They may be fooling themselves. "Reading between the lines we believe that this is the long-term strategy," says John Leonard at Salomon Smith Barney, "but our enthusiasm for the BNP project would be considerably greater if we knew this to be the case".

As a hostile bidder, BNP has also been hampered by its inability to deliver a knock-out blow. Financially, there is little to choose between them. Indeed BNP has yet to find away around the problem that its share offer for SocGen is effectively underwriting the SocGen offer for Paribas that it is trying to beat.

Investors hoping for a clear choice have thus been disappointed. Many suspect that from the outset BNP had always been playing for a draw.

Although Mr Pebereau has been unable because of capital constraints to blow SocGen and Paribas out of the water, he has always had two trump cards up his sleeve. One is the support of the French government, which sees BNP as the core of a national champion on the world stage. The other is the support of Claude Bebear, the scheming chairman of Axa, the insurance giant who holds the biggest single chunk of both Paribas and BNP, and has been batting for BNP since before the bid was launched.

If all else fails BNP has a loaded gun to put to the government's head. Mr Pebereau has made it clear that if he cannot take over Societe Generale or merge with Credit Lyonnais, the only option would be a deal with Dresdner, thus letting the Germans inside the city walls. It would be irony indeed if a bid launched to defend shareholders' rights was decided by politics. But then, helas!, this is France.

News
Patrick Stewart in the classiest ice bucket to date
peopleSir Patrick took a more understated approach to the challenge
News
The current recommendation from Britain's Chief Medical Officer, is that people refrain from drinking on at least two days a week
scienceTheory is that hangovers are caused by methanol poisoning
Arts and Entertainment
tvWe have created an infogaphic that looks back over the previous incarnations of the Doctor
Sport
Olivier Giroud celebrates after his late goal saved Arsenal a point at Goodison Park
football Giroud rescues a point for Arsenal after they trailed by two goals
PROMOTED VIDEO
News
i100
News
newsComedian Lee Hurst started trend with first tweet using the hashtag
News
i100
News
Australian rapper Iggy Azalea was left red faced but, thankfully, unhurt after taking a few too many steps backwards, sending her tumbling off the stage.
people
Life and Style
A nearly completed RoboThespian robot inside the Engineered Arts workshop is tested in Penryn, England. The Cornish company, operating from an industrial unit near Falmouth, is the world's only maker of commercially available life sized humanoid robots
techSuper-intelligent robots could decide destroying the human race is the kindest thing to do
Life and Style
techConcept would see planes coated in layer of micro-sensors and able to sense wear and tear
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
News
scienceExcitement from alien hunters at 'evidence' of extraterrestrial life
News
newsRyan Crighton goes in search of the capo dei capi
Life and Style
Customers can get their caffeine fix on the move
food + drink
News
i100
Extras
indybest

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Software Developer (Java /C# Programmer)- London

£30000 - £45000 per annum: Harrington Starr: A global investment management fi...

Senior Network Engineer-(CCIE, CCNP, Cisco, London)

£65000 - £75000 per annum: Harrington Starr: Senior Network Engineer-(CCIE, CC...

Senior Network Analyst - (CCIE, Cisco, CISSP)

£70000 - £80000 per annum: Harrington Starr: Senior Network Analyst - (CCIE, C...

Senior Network Engineer-(Design, Implementation, CCIE)

£60000 - £80000 per annum: Harrington Starr: Senior Network Engineer-(Design, ...

Day In a Page

All this talk of an ‘apocalyptic’ threat is simply childish

Robert Fisk: All this talk of an ‘apocalyptic’ threat is simply childish

Chuck Hagel and Martin Dempsey were pure Hollywood. They only needed Tom Cruise
Mafia Dons: is the Camorra in control of the Granite City?

Mafia Dons: is the Camorra in control of the Granite City?

So claims an EU report which points to the Italian Mob’s alleged grip on everything from public works to property
Emmys look set to overhaul the Oscars as Hollywood’s prize draw

Emmys look set to overhaul the Oscars as Hollywood’s prize draw

Once the poor relation, the awards show now has the top stars and boasts the best drama
What happens to African migrants once they land in Italy during the summer?

What happens to migrants once they land in Italy?

Memphis Barker follows their trail through southern Europe
French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

The ugly causeway is being dismantled, an elegant connection erected in its place. So everyone’s happy, right?
Frank Mugisha: Uganda's most outspoken gay rights activist on changing people's attitudes, coming out, and the threat of being attacked

Frank Mugisha: 'Coming out was a gradual process '

Uganda's most outspoken gay rights activist on changing people's attitudes, coming out, and the threat of being attacked
Radio 1 to hire 'YouTube-famous' vloggers to broadcast online

Radio 1’s new top ten

The ‘vloggers’ signed up to find twentysomething audience
David Abraham: Big ideas for the small screen

David Abraham: Big ideas for the small screen

A blistering attack on US influence on British television has lifted the savvy head of Channel 4 out of the shadows
Florence Knight's perfect picnic: Make the most of summer's last Bank Holiday weekend

Florence Knight's perfect picnic

Polpetto's head chef shares her favourite recipes from Iced Earl Grey tea to baked peaches, mascarpone & brown sugar meringues...
Horst P Horst: The fashion photography genius who inspired Madonna comes to the V&A

Horst P Horst comes to the V&A

The London's museum has delved into its archives to stage a far-reaching retrospective celebrating the photographer's six decades of creativity
Mark Hix recipes: Try our chef's summery soups for a real seasonal refresher

Mark Hix's summery soups

Soup isn’t just about comforting broths and steaming hot bowls...
Tim Sherwood column: 'It started as a three-horse race but turned into the Grand National'

Tim Sherwood column

I would have taken the Crystal Palace job if I’d been offered it soon after my interview... but the whole process dragged on so I had to pull out
Eden Hazard: Young, gifted... not yet perfect

Eden Hazard: Young, gifted... not yet perfect

Eden Hazard admits he is still below the level of Ronaldo and Messi but, after a breakthrough season, is ready to thrill Chelsea’s fans
Tim Howard: I’m an old dog. I don’t get too excited

Tim Howard: I’m an old dog. I don’t get too excited

The Everton and US goalkeeper was such a star at the World Cup that the President phoned to congratulate him... not that he knows what the fuss is all about
Match of the Day at 50: Show reminds us that even the most revered BBC institution may have a finite lifespan – thanks to the opposition

Tom Peck on Match of the Day at 50

The show reminds us that even the most revered BBC institution may have a finite lifespan – thanks to the opposition