The head of French bank Societe Generale has hired investment banks to advise on the possibility of a merger with larger domestic rival BNP Paribas, Les Echos newspaper reported on Friday.
The newspaper said both a friendly deal and hostile bid were being examined but that Societe Generale's management was divided over the idea. It named one of the banks advising SocGen as Morgan Stanley.
"We do not comment on rumours," a Societe Generale spokeswoman said.
The report of a possible merger between France's top listed banks comes after Italy's UniCredit, with which Societe Generale has been linked in the past, moved to merge with domestic rival Capitalia.
Dutch ABN Amro agreed a deal with Barclays but also faces a rival offer by a consortium of Royal Bank of Scotland, Fortis and Santander.
BNP Chief Executive Baudouin Prot said on May 15 that his bank was not interested in any deal with Societe Generale, telling shareholders such a link would carry "huge execution risks."
BNP is much larger than SocGen, with a market capitalization of around 80 billion euros compared with SocGen's 64 billion.
At the moment, HSBC is the biggest European bank by market value followed by Royal Bank of Scotland and Banco Santander.