BNP talk lifts SocGen as France warns predators

PARIS/LONDON (Reuters) - France warned foreign banks on Tuesday not to try to grab control of Societe Generale, as speculation of a takeover approach by rival BNP Paribas drove its shares more than 10 percent higher.

"The government is determined that Societe Generale remains a great French bank," Prime Minister Francois Fillon told parliament. "The government will not let Societe Generale be the object of hostile raids by other companies," he said earlier.

SocGen shares ended the day up 10.4 percent at 78.45 euros, spurred on by persistent rumors that France's biggest listed bank, BNP Paribas, might launch a bid following the rogue trading scandal which has engulfed SocGen.

BNP, which made a failed bid for SocGen in 1999, declined to comment on the market talk but a person familiar with the matter said it had not ruled out bidding for its rival.

The source said internal discussions at BNP were at a preliminary stage, and any move is unlikely to be imminent.

Analysts, however, were skeptical that a bid for SocGen was imminent because the bank had not been mortally wounded.

"SocGen has taken a hit, but it does not need to be more than a flesh wound," said Simon Maughan at MF Global.

SocGen said on January 24 it had uncovered massive unauthorised stock trading by one of its employees that led to 4.9 billion euros ($7.2 billion) of losses, the world's biggest rogue trading scandal.

Jerome Kerviel, a 31-year old junior trader, was placed under investigation for breach of trust and other misdeeds on Monday, but judges threw out the stronger accusation of fraud made by the bank and prosecutors freed him on bail.

Kerviel said in transcripts of interviews with police that his activities could not have gone undetected by SocGen.

"I cannot believe that my superiors did not realize the money I was committing (to the illicit trades). It was impossible to generate such profits with small positions," Kerviel said, according to the transcripts.

SocGen has been forced to launch a capital increase to raise 5.5 billion euros to cover the losses, as well as a 2.1 billion euro writedown resulting from the subprime crisis, but its balance sheet is otherwise strong.

The future of SocGen chairman Daniel Bouton has been left hanging by a thread as the government called for changes at the helm after the scandal.

CHAIRMAN'S FUTURE IN BALANCE

The bank's board is expected to meet on Wednesday, facing embarrassment over its failure to make a fraud accusation stick against Kerviel and with doubts cast over the bank's version of events.

Bouton, who last week offered to leave but was asked to stay on by the board, said on Monday his resignation remained on the table, suggesting he is aware his position may be unsustainable.

Bouton's departure would raise a problem of succession at the bank. His heir apparent, Jean-Pierre Mustier, heads the investment division that employed Kerviel and has also been damaged by the crisis.

SocGen's managers suffered more embarrassment when a French prosecutor revealed on Monday that Eurex, a derivatives exchange owned by Deutsche Boerse, had questioned Kerviel's trading positions in November, but that Kerviel had been able to sidestep questions from his employer.

The government has expressed annoyance that it was not tipped off sooner that a crisis was brewing and piled pressure onto its bosses.

"Societe Generale is in a crisis situation," Economy Minister Christine Lagarde told LCI television on Tuesday.

"In a difficult moment, the board members are there to decide if the person in charge is the best placed to run the ship when it is pitching a bit, or whether they should change the captain," Lagarde said.

President Nicolas Sarkozy said on Monday SocGen managers would have to accept their share of responsibility.

GLOBAL LEADER

SocGen, which in recent years has become a global leader in financial derivatives trading, has said it was in the dark about Kerviel's alleged illicit trades until it spotted a discrepancy on January 18, triggering an internal investigation.

Kerviel ran up a huge position of 50 billion euros on futures tied to European share indices. Instead of protecting the bank's investment as he had told supervisors, he left it exposed to the risk that shares would fall.

(Additional reporting by Sudip Kar-Gupta, Tim Hepher; Astrid Wendlandt, Sophie Louet, Thierry Leveque, Crispian Balmer, Francois Murphy, Yann Le Guernigou, Blaise Robinson, Reuters bureaus; Editing by Alexander Smith, Paul Bolding and David Holmes)