Archive for January, 2008

Should SocGen be acquired?

Posted on Tuesday, 29 January 2008. Filed under: Commentary, Mergers |

Should Société Générale be acquired?  Naturally, the answer to this will still require some answers from SocGen itself together with the French regulators, but in any other country than France, the answer would be a resounding ‘yes.’  Look no further than Bankers Trust in the US who had several lawsuits and a declining franchise due to the activity of just one or two departments in derivatives and bond trading;  the US Federal Reserve apparently told Bankers Trust in the late 1990’s that they needed to find a buyer, and ultimately Deutsche Bank came to their rescue.

Yet France is unique in trying to save what it considers French assets.  You need look no further than the previous attempts by foreign banks (even including German banks during the period when France and Germany in the 1990’s were very close) to buy French banks;  or the famed rejection of a foreign bidder for Danone (the yoghourt makers) on national security grounds. 

The most natural bidder from the French perspective would be BNP or Credit Agricole, but this would have concentration problems that even the French might not be able to overcome.  It is unlikely the French would allow a British or American buyer — although if one came in as an investor to shore up SocGen, then I am sure the French would welcome the cash.  (KKR is rumoured to be considering this, as are various sovereign wealth funds who have ridden to the rescue of the American banks that were hit by the recent credit and liquidity crisis.)

How about Grupo Santander, who have concentrated their banking empire in the Iberian Peninsula and Latin America but have done very well with their purchase of Abbey National in the UK in November 2004.  Abbey were damaged goods.  SocGen is as well.  But both had franchises — including loyal customer bases — that were significant assets.  Emilio Botín, the chairman of Santander, has not made as splashy an acquisition since then.  SocGen fits the bill.  And Santander appears to be relatively unscathed by the credit problems of other banks, so has the wherewithal to do the deal. 

There’s rumours of HSBC looking at SocGen as well.  They, too, would have the ability to do the deal if approved.

One final comment:  SocGen shareholders should be grateful for all of the rumours of takeover, as it is propping up their share price.  Otherwise, given the size of the losses and the distraction impact (both on employees — who must all have their CVs out to other firms — and clients — who would find it hard to recommend SocGen over competitors at this moment), the share price should have plummeted.

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Acquire Merrill Lynch? Merge Merrill with another bank?

Posted on Wednesday, 2 January 2008. Filed under: Commentary, Mergers |

Even John Thain’s magic is taking time to work at Merrill Lynch, although we really do need to give him a bit more time than he’s had to have a real impact.  Nevertheless, he’s been busy breaking up Merrill Lynch, with the sale of its capital finance business to General Electric just before Christmas (see the story in the Deal Journal from The Wall Street Journal on 24 December) which improved Merrill’s capital position by $1.3 billion, the announcement last Monday of the sale of $6.2bn in shares to Singapore’s Temasek and asset manager Davis Selected Advisers, the sale announced today of it’s insurance units to Aegon NV for $1.25 billion (see FT Alphaville and reportedly for $50 million less than discussed in August), and now the reports  from Reuters and The Observer that it is talking with Chinese and Middle Eastern sovereign wealth funds about further capital injections.

I’d like to refer readers back to two earlier posts on this blog:  ‘No Merger:  Just Split up Merrill Lynch‘ from 29 October and ‘More about Breaking Up Merrill Lynch, Citi and Northern Rock‘ from 9 November.  It seems to us that further changes, as predicted in those two postings, are still necessary, as an additional $7.5 billion is being sought (see Here is the City from today).  It also remains attractive to maximise the value of the Merrill franchise by conducting further sales, as John Thain appears to be contemplating, to focus on the core business of brokerage and investment banking.  This does require ‘breaking up’ Merrill Lynch — which is being done in a somewhat orderly fashion, even if the prices achieved for the pieces are lower than would have been achieved earlier (note the sale to Aegon above).

A merger should still not be out of the question, although discussions about a merger with Wachovia were cited as one reason that Stan O’Neal was fired.  One thing is certain:  When John Thain discusses a merger, he’ll check with the Merrill Lynch board first!

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