SocGen could be next banking break-up

LONDON (Reuters) - French bank Societe Generale (SOGN.PA), looking increasingly cheap as its shares extended their decline on Monday, could become a break-up target like Dutch bank ABN AMRO if no single buyer wants all its assets.

The bank's big size and diverse mix of businesses may make it too large and unwieldy a target for any single bidder, especially in the current difficult financing environment where banks may struggle with large acquisitions, analysts said.

Dutch ABN AMRO agreed last year to be broken up, with Bank of America taking its U.S. operations, Royal Bank of Scotland its investment bank, Santander its Italian and Brazilian units and Fortis its domestic operations.

"A break-up scenario a la ABN AMRO is looking increasingly possible for SocGen," said Keefe Bruyette & Woods analysts Jean-Pierre Lambert and John Holmes in a report on Monday.

Like ABN AMRO, SocGen has a diverse mix of assets including a mature domestic retail bank, higher-growth emerging market operations such as branches in Bulgaria and the Czech Republic, an asset management unit and a corporate and investment bank.

The bank has been rocked to its foundations by the loss of around 4.9 billion euros (3.6 billion pounds), which the bank has said resulted from unauthorized trades by trader Jerome Kerviel.

Recent woes in the credit market have forced many banks across Europe and the U.S. to cut staff and take significant writedowns. This makes Societe Generale's 35 billion-euro market value a stretch for most in this environment and has prompted some touted suitors for the whole bank to rule themselves out.

Italy's Unicredit, for example, said on Friday it does not plan any acquisitions in the short term. The Italian bank had held talks with SocGen last year and has a track record of aggressive growth through large acquisitions.

Another potential bidder, BNP Paribas, could certainly profit from the growth buying Societe Generale would give it in France, but according to a source familiar with its management's thinking, is not enthused by the thought of having to integrate its rival's investment bank in the event of a full takeover.

FRENCH ESTABLISHMENT RALLIES ROUND

And as SocGen's management continues to face questions about its credibility, doubts are increasingly being cast on the bank's long-term independence.

"I don't think SG can, in the current context, keep its independence," said Francois Chaulet, a fund manager at Montsegur Finance.

But French Economy Minister Christine Lagarde said on Monday that Societe Generale was under no pressure to merge with another bank as its shares plunged.

Lagarde's statement was the latest sign that France's establishment is rallying round to SocGen's defense in an attempt to stave off talk that a foreign rival might launch a takeover bid for the company as its market value sinks.

Societe Generale's shares fell another 5.4 percent to 69.88 euros. They traded as high as 162 euros in April before the global credit crisis kicked in.

A top adviser to President Nicolas Sarkozy warned on Sunday the government would probably intervene if raiders made a move. That still leaves scope for an all-French solution, however.

"A French solution would be a joint offer by (French bank) Credit Agricole and BNP," said Keefe Bruyette's Lambert and Holmes. "Credit Agricole might nominally have to take over SG and then sell on the retail banking operations to BNP."

Parts of SocGen may be much easier to digest than the whole.

Credit Suisse analyst Guillaume Tiberghien has valued SocGen's retail banking operations at about 29 billion euros -- of which 8.7 billion euros for its non-French branches -- and its corporate and investment bank at about 12 billion euros.

Still, the current market woes and the uncertainty they create may give Societe Generale respite from any kind of offer as banks wait for a more stable climate before making any moves, bankers and analysts said.

And, unlike ABN AMRO whose share price lagged other banks for several years and prompted activist investors to get involved, Societe Generale has broadly outperformed its peers, its wobbles having occurred recently.

"This is different -- ABN AMRO was a case of long-term underperformance," said a senior investment banker who added that banks would be extremely hesitant to commit to large buys in the current environment.

This could give SocGen's management valuable time to re-establish credibility and find its feet again to avoid being swallowed up by one -- or several -- rivals.

(additional reporting by Sudip Kargupta in Paris, editing by Elizabeth Fullerton)