France's biggest listed bank, BNP Paribas, has decided not to pursue a possible tie-up with rival Societe Generale, which has been seen as a bid target after suffering a trading scandal.
"Given the persistent rumors, BNP Paribas clarifies that it has ceased to consider a potential tie-up with Societe Generale," BNP Paribas said in a statement on Wednesday.
"If a French bank that knows the market doesn't want it, then it's unlikely that anyone else will," said Ion-Marc Valahu, head of trading at Amas Bank in Switzerland.
BNP Paribas shares were up around 5 percent in early morning trade while SocGen fell 4.8 percent. SocGen has a market capitalization of around 30 billion euros ($47.44 billion) while that of BNP Paribas stands at around 56 billion euros.
"It's obviously bad news for SocGen shareholders. Nevertheless, it was expected and we had anticipated it since BNP would not have taken that much time if it really wanted to make a bid," said Iris Finance fund manager Michael Sellam, who holds SocGen shares.
A source close to the matter said BNP Paribas came to its decision because it could not reach a friendly deal with SocGen and would not make a hostile bid. The announcement means BNP Paribas is prevented from bidding for SocGen for six months.
In January BNP, which narrowly failed to buy SocGen in 1999, said it was looking at its rival. SocGen became vulnerable to a bid after announcing 4.9 billion euros of losses which it said were caused by rogue deals carried out by one of its traders.
The source said uncertainty in financial markets over the credit crisis and the investigation into Jerome Kerviel, the trader who SocGen has said was responsible for its losses, also contributed to BNP's decision.
"Trying to sell a deal like this in the current market environment is impossible," said the source.
BNP said the conditions were not right for a deal to take place.
SocGen Likely to be Left Alone
Despite the effects of the trading scandal, hopes of a takeover bid have supported SocGen shares. Earlier this month French bank Credit Agricole said that although it was not planning any major takeovers this year, it would monitor the situation regarding SocGen.
Despite criticism from top politicians, including French President Nicolas Sarkozy, SocGen Chairman Daniel Bouton has remained in charge of the company, and last month Bouton told Reuters he would continue with SocGen's standalone strategy.
BNP said it remained well-placed to continue growing its business and would focus on its existing retail banking, investment banking and asset management services.