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Saturday, August 28, 1999 Published at 04:11 GMT 05:11 UK

Business: The Company File

Plan to create Europe's largest bank fails

BNP wanted to create a French superbank

The plan of Banque Nationale de Paris to create Europe's largest banks in assets through a hostile takeover of rivals Paribas and Societe Generale has failed.

After 11 hours of deliberations, French banking regulators ruled that BNP had to return its minority stake of 37.15% of SocGen's capital, which it acquired during the hostile takeover bid.

The Committee of Credit and Investment Institutions (CECEI) said that BNP "does not hold in a patent manner an effective power of control over Societe Generale".

The meeting of the 11-man regulatory body had dragged on into the early hours of Saturday morning.

However, the six months long takeover battle may not be over yet. BNP has the option to contest the ruling with France's highest administrative court, the Council of State.

However, the bank has said that BNP and Paribas would "from now on devote themselves to their merger, which gives birth to France's leading bank and a European leader in financial services.

The merged company would be France's leading bank in terms of net profit, but number two in terms of assets, behind French mutual bank Credit Agricole.

Spoiling a friendly merger

BNP had launched the $37bn bid for SocGen and Paribas after it emerged that the two were negotiating a friendly merger between themselves.

BNP achieved a majority stake in Paribas, but only managed to acquire 37.15% of SocGen's capital and 31.8% of its voting rights.

In France, smaller stakes than that have been enough to control a company.

[ image: The boss of the French central bank, Jean-Claude Trichet, ruled against BNP]
The boss of the French central bank, Jean-Claude Trichet, ruled against BNP
But SocGen had been determined to resist the takeover.

In calling on the banking regulator to block BNP's takeover, the bank cited a letter from Bank of France Governor Jean-Claude Trichet, who chairs the CECEI, in which he said if a bidder failed to get 50.01% of voting rights it would need to present a "clear and concerted" industrial solution.

SocGen had argued that BNP had failed in its takeover bid and should give back the shares to shareholders.

The bank's staff had also actively worked against the merger, staging mass protests throughout France.

SocGen is looking to develop separately by forming cross-border European partnerships.

No 'national champion'

Many analysts had believed that the Bank of France would have prefered to see the creation of a French "superbank" as envisaged by BNP.

A three-way merger would have created a private bank with assets of around $1000bn, capable of punching its weight on the global stage.

This would have been in the French tradition of creating "national champions" in industrial sectors.

Finance Minister Dominique Strauss-Kahn appeared to support this view with his comments on French television on Friday.

Although he said that whatever the outcome, it would be a good thing for the French economy, the Finance Minister was markedly more enthusiastic about the possibility of a big merger.

"If the regulator decides that it's possible, then we will have a European champion of a similar size to others in Europe and the world.

"If it decides that it would be better for the two banks to continue separately, then in that case, we will have BNP and Paribas ... which is a major group, and we will have to work at strengthening Societe Generale," he said.

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