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By Jason Simpkins
A highly publicized rogue trader scandal has again made Societe Generale (SCGLY) the target of speculation about a possible takeover bid. But that speculation may be premature considering all of the prospective hurdles involved.
The collapse of mortgage-backed assets, a depleted U.S. market, and a rogue trader scandal that cost SocGen $7.2 billion, have done significant damage to the company's reputation and its stock price.
In the past two weeks SCGLY stock has plummeted 26%. The company's Paris-based shares (FR: 013080) fell nearly 4% to $104.32 (70.94 euros) yesterday (Monday). And Morgan Stanley (MS) has downgraded the stock from ‘Buy' to ‘Hold.'
Additionally, last week's trading scandal exasperated an already unnerving position for the bank. Jerome Kerviel racked up a $7.2 billion loss for the company after betting approximately $73 billion that the European market would rise. The fraud took place in SocGen's derivatives unit, one of the most prestigious in the world.
The bank has previously been linked to potential bids from Italy's UniCredito Italiano Corp. and domestic rival BNP Paribas (BNPQY). In its weakened state, the United Kingdom's Barclays PLC (BCS) may also top the list of predators hungry for such an opportunity as this.
Barclays failed to acquire ABN Amro (ABN) last year, when it was beaten out by Royal Bank of Scotland (RBS) and its partners. While Barclays has since secured more shareholders in China and Singapore, its shares are trading more than 30% below last February's peak. So a move on SocGen, while possible, may not necessarily be in Barclays best interest.
"Most banks' excess capital has vanished over the last month, and the share prices have dropped," Deutsche Bank analyst Brice Vandamme told MarketWatch. "Such a deal would thus imply a large part of wholesale funding, which makes it difficult to realize, taking into account the current funding conditions."
Even a larger bank like UniCredito or BNP Paribas might encounter some difficulties. UniCredit is still working through its merger with Capitalia. And BNP, already the largest bank in France is looking to expand in emerging markets, where there is more room for earnings growth.
Any potential suitor could run into government resistance as well. It's likely that politicians and officials might be less than willing to turnover one of the nation's bellwether financials to a foreign investor.
Speaking on French radio Sunday, Henri Guaino, Nicolas Sarkozy's chief political strategist, said that it is likely the government would intervene.
"In this case I don't think the state would remain with its arms crossed if someone, whoever the predator, tried to take advantage of the situation," Guaino said in a television interview when asked if Sarkozy would defend SocGen from foreign rivals.
News and Related Story Links:
- Guardian Unlimted:
- Money Morning:
Rogue Trader Costs Societe Generale $7.2 Billion