Executives of French bank BNP Paribas sounded out the French government several weeks ago over a possible bid for scandal-hit rival Societe Generale, said a source familiar with the matter.
The source told Reuters on Thursday that the meeting was held to see whether BNP Paribas, France's biggest listed bank, would face opposition if it were to make an offer for SocGen, which has been weakened by a huge internal trading scandal.
Earlier this month, a source told Reuters BNP Paribas was not planning a hostile bid for SocGen but could be interested in a friendly deal. BNP is also expected to bide its time while SocGen executes a 5.5 billion euro ($8.3 billion) rights issue in coming weeks.
The meeting with top officials was attended by Chairman Michel Pebereau and Chief Executive Baudouin Prot and took place in the framework of BNP evaluating, in the days after the Jan. 24 announcement by SocGen of the trading scandal, whether to seriously contemplate bidding for its rival, said the source.
Many banks looked at the stricken French bank at that time.
"The meeting took place at least two or three weeks ago," said the source.
BNP Paribas just failed to buy SocGen in 1999 and the latter's recent problems have rekindled long-standing speculation of a tie-up between France's two biggest listed banks.
President Nicolas Sarkozy has supported a policy of "economic patriotism" and a BNP/SocGen combination would create a global top-five bank by market capitalization, headquartered in Paris. But it might also lead to job losses.
SocGen shares were up 1.9 percent at 70.30 euros at the market close, outperforming the CAC-40 Index.
BNP Paribas shares were down 4.5 percent at 61.05 euros, valuing BNP at around 56 billion euros.
On Jan. 24, SocGen reported 4.9 billion euros of losses which it blamed on rogue deals carried out by Jerome Kerviel, a 31-year-old junior trader.
The bank's woes have made it a likely bid target and, on Jan 31, BNP Paribas said it was studying a possible bid for SocGen.
Magazine Le Point had earlier reported on Thursday that BNP Paribas was lobbying the French government to support any bid it might make for SocGen.
Traders then mentioned speculation of a cash-and-shares bid from BNP for SocGen.
"There's a rumor of 1.2 BNP shares plus 18 euros in cash for every SocGen share," said one trader in London.
BNP Paribas would want any combination with its beleaguered arch-rival to be on a friendly basis and would not want to go hostile, sources familiar with the matter have said.
Sources have also said BNP Paribas is likely to wait while SocGen executes a fully underwritten 5.5 billion euro rights issue designed to repair its finances.
The end of the subscription period for the rights issue is Feb 29. The capital increase has been structured as a one-for-four rights issue at 47.50 euros.
BNP Paribas said the latest bid speculation was "pure rumor." The source familiar with the matter also played down this latest bid rumor.
Kerviel has been placed under formal investigation for breach of trust, computer abuse and falsification over the losses. He is in detention pending the investigation.