BNP secures effective control of Paribas after bitter fighting

Banque Nationale de Paris (BNP) has obtained control of the French investment bank Paribas, the French Council for Financial Markets (CMF) announced at the weekend.

The hostile takeover creates France's largest bank, with market capitalisation of $35.6 billion It is the result of the most fierce takeover battle in French history, a three-way, six-month saga in which the protagonists indulged in numerous lawsuits, insults and a propaganda blitz.

According to a preliminary count announced by the CMF on Saturday evening, BNP now holds 65.1 per cent of Paribas shares and 65.2 per cent of its voting rights. The results were announced two days earlier than planned because leaks in the French press made continued silence by the CMF untenable.

But the fate of Societe Generale (SG), the third party in the banking drama, remains unclear. BNP obtained 36.8 per cent of SG shares, but only 31.5 per cent of its voting rights. In what is billed as its most important decision ever, the Committee of Credit Establishments and Investment Enterprises (CECEI), headed by the governor of the French central bank, Mr Jean-Claude Trichet, should decide tomorrow whether BNP will be allowed to retain its stake in SG. The French treasury is also represented on the committee.

BNP claims that since no other individual shareholder has more than 10 per cent of SG, its 36.8 per cent of the bank constitutes "effective control". This is rejected by SG's chairman, Mr Daniel Bouton. "Having received less than a third of the voting rights, BNP has not taken control of Societe Generale," an SG statement said on Saturday night.

Mr Michel Pebereau, the chairman of BNP which launched simultaneous hostile raids on SG and Paribas on March 9th to prevent their marriage, will meet his board today. The BNP board is expected to petition the CECEI to allow BNP to keep the SG shares tendered to it during the takeover battle - enabling BNP to continue gobbling up SG. Mr Pebereau has not given up his dream of merging all three banks to create the world's first trillion dollar bank, to be called SBP.

Following its attack on the two other French banks, BNP now finds itself in the dilemma of the biblical figure Jacob, who wanted to marry Rachel but found himself wedded to her sister Leah instead. Mr Pebereau was not really interested in Paribas - although he did want to prevent its merger with SG. By combining BNP's and SG's domestic banking networks, he had intended to create what he called "a national champion on a world scale". French newspapers yesterday reported that BNP had "kidnapped" Paribas, whose staff are said to be despondent.

Paribas has no retail branches and prides itself on its affluent clientele and industrial holdings, as well as on being the French banking leader in information technology. "BNP is a retail bank. It's old and dusty. I don't think they even have computers yet," a Paribas employee mockingly told Liberation newspaper. Because of the intense animosity surrounding the takeover, it is feared that many Paribas staff may leave - a serious loss in an investment bank.

The results announced on Saturday night are especially unpalatable for the French Finance Minister, Mr Dominique Strauss-Kahn, and Mr Trichet at the Banque de France. Both men feigned neutrality in the conflict between three private banks, but both were known to favour Mr Pebereau's ambitious SBP project.

Mr Strauss-Kahn has broken off his summer holiday to deal with the crisis.

The battle has revived an atavistic protectionism that sees foreign control of a French bank as a threat to national interests. Yet foreign institutional investors already hold 34.4 per cent of SG and other foreign shareholders, including the British insurer CGU, the Spanish bank BSCH and the German insurance company Allianz, hold another 17.4 per cent - in other words 51.8 per cent of SG's capital. British and US pension funds own 40 per cent of BNP.

Mr Strauss-Kahn intervened several times in recent months, discreetly asking the Spanish finance ministry to keep BSCH out of the fray and summoning the chairmen of SG and Paribas to the finance ministry to forbid them from seeking a foreign "white knight" to save them from Mr Pebereau.

When CGU said it would increase its share of SG to 10 per cent to help the French bank, French authorities announced that "concerted actions" are forbidden during takeovers and initiated procedures aimed at annulling CGU's latest share acquisitions.

Mr Bouton at SG says a faithful core of 52 per cent of SG shareholders - -- including the above-mentioned foreigners as well as the French companies Alcatel, Peugeot Citroen, Pernod Ricard and the Caisse des depots - will resist BNP if the CECEI allows it to retain its minority share.

If BNP does not gain control of SG, Mr Strauss-Kahn and Mr Trichet fear the French bank will find a European partner. The French government may well reason that accusations of state interventionism are less damaging than the loss of a major French bank to a foreign predator.