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Banks feel heat as Paribas and Societe Generale merge

Andrew Garfield
Tuesday 02 February 1999 00:02 GMT
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PRESSURE FOR consolidation among Europe's big banks intensified yesterday after France's Societe Generale and Paribas yesterday tied the knot on a 15bn euro (pounds 10.2bn) all-share merger to create the world's fourth largest banking group.

Immediately the deal was struck the architects of the new deal held out a hand to other potential merger partners, triggering speculation that a further merger deal with either Britain's Barclays bank or Wall Street investment house Merrill Lynch could follow yesterday's move.

Daniel Bouton, the chief executive of Societe Generale and vice-president of the combined bank, said yesterday: "We were looking to something that would consolidate the bank's stronghold in France but would also be open to a diversity of parties."

Yesterday's French merger comes barely a fortnight after Spain's Banco Santander and Banco Central Hispano merged to create a new 30bn euro giant on the French banks' doorstep, and only weeks after Germany's Deutsche Bank cemented a Transatlantic deal with Bankers Trust of the US.

The SocGen/Paribas deal leaves Banque Nationale de Paris, the privatised French bank that had recently made its own merger overtures to Paribas, particularly vulnerable.

There was speculation that yesterday's merger would leave BNP little choice but to either succumb to a merger approach from BBV of Spain, or go for Barclays - the British clearing bank that has yet to find a replacement for Martin Taylor, the chief executive who quit the bank in dramatic circumstances in December.

Dresdner, owner of Kleinwort Benson, the City investment bank, has close ties with BNP but resisted efforts by successive French governments to persuade it to go the next step and merge with the French bank.

Significantly, yesterday's merger brings Societe Generale and Paribas up to roughly level pegging with Britain's Barclays and National Westminister Bank in terms of market worth, as well as its rival BNP.

SG Paribas said it was still interested in being allowed to participate as a core shareholder in Credit Lyonnais, which is being privatised this spring. To this end Societe Generale is dropping its complaint to the European Commission about the government bail-out of its rival.

Shareholders in the two banks will be offered shares in the combined SG Paribas on the basis of five SocGen shares for eight Paribas. That represents a premium of 17 per cent over the average Paribas share price over the past three weeks.

The banks are to take a merger provision of one billion euros to cover redundancies and the costs of integrated computer systems. They anticipate merger savings of 800m euros a year by 2001.

However, both Mr Bouton and Andre Levy-Lang, the Paribas chairman who is to assume the chairmanship of the combined group until 2002, insisted there would be no "forced redundancies" and that any headcount reductions would be through natural wastage.

Outlook, page 15

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