Societe Generale, the French bank hit by a rogue trader scandal, was studying bid defence options on Friday as a newspaper said a second domestic rival had hired advisers to consider a takeover.
Shares in SocGen rose 5.5 percent in early trade after Les Echos newspaper said Credit Agricole, France's third-largest bank by value but the biggest in terms of retail branches, had hired Lazard and its own investment bank, Calyon, to study a bid.
Credit Agricole declined to comment.
BNP Paribas, France's biggest listed bank, confirmed on Thursday it would look at making an offer for SocGen, the number two player, which was weakened last week when it revealed 4.9 billion euros ($7.3 billion) in trading losses it blamed on a single rogue trader, Jerome Kerviel.
BNP failed in 1999 to buy SocGen, which now has a market value around 40 billion euros, and since the trading scandal broke there has been speculation of a joint bid in which Credit Agricole would take SocGen's investment banking arm and BNP its retail business.
The bank is assessing a possible bid with help from investment banks Goldman Sachs, which advised it on its 1999 Socgen bid, and Lehman Brothers.
SocGen has said it is determined to stay independent, and on Friday a source familiar with the matter said it was studying how it could avoid a low-priced takeover.
"Provided there are no other bad surprises, it would be easier for SocGen's board to do a deal once the water is calmer," said the source. "There would be a backlash if they feel people are just trying to buy them on the cheap."
SocGen's strategy will focus on convincing investors that the bank, whose share price has halved since last spring, is worth a lot more than its current market price, said the source.
By 1436 GMT, the shares were up 4.8 percent at 87.14 euros.
In the event of an unsolicited or hostile offer, SocGen could seek a white knight among Europe's banks, said the source. That could antagonise the French government, which has signalled it wants SocGen to remain French, and could lead to a showdown between France and the EU, which favours open markets.
French Prime Minister Francois Fillon said on Friday "the government has no preference," three days after he had said it should remain a "great French bank," and a day after President Nicolas Sarkozy said the state wouldn't leave the bank "at the mercy of any predator."
"The government has not vetoed anything, it does not have the possibility to do so. It is simply indicating its interest and its determination to ensure that the employees' interests, our country's economic interests, are preserved," Fillon told a news conference.
A group representing 3,000 employees, however, took out a newspaper advert on Friday declaring that a friendly merger could make sense, though it opposed an "opportunistic attack."
The bank could also seek an investor such as a sovereign wealth fund to buy a defensive blocking stake, said the source.
Analysts say foreign banks including UniCredit, Santander, BBVA and HSBC could be interested, though UniCredit's chief executive said on Friday the Italian bank was not in the frame, while BBVA's chairman and a spokesman for Santander have said the Spanish banks are not interested in Societe Generale.
Sources familiar with the matter said SocGen was talking with advisers including Rothschild, JP Morgan and Morgan Stanley for its bid defence. Another source familiar with the situation said Merrill Lynch may also join its team of advisers. SocGen declined to comment, as did Merrill.
Kerviel, the trader at the centre of the scandal, whose exploits have spawned Internet fan clubs and support groups around the globe, is under investigation for breach of trust and other misdeeds, but judges threw out SocGen's stronger accusation of fraud, and he was freed on bail.
France's appeals court will sit on February 8 to decide whether Kerviel should be detained during the investigation.
The prosecutor said on Friday that SocGen CEO Daniel Bouton would very likely face questions from the investigating judges.
On Feb. 4, Economy Minister Christine Lagarde is due to hand a report to Fillon, giving a first assessment of the incident and outlining recommendations on how to strengthen internal and external controls on the bank's trading operations.