LONDON -- Despite all the talk that Banque Nationale de Paris' bid for Societe Generale and Paribas heralds a new era of consolidation in France's banking industry, more likely than not it will end up being a good old-fashioned European tussle between business, government and the unions.

BNP crashed SocGen and Paribas' engagement party by announcing a bid for its two biggest rivals. The surprise move was undoubtedly prompted by an element of resentment on BNP's part: The company was wooing Paribas when SocGen whisked her away. Nevertheless, the deal is not without merit.

The three-way merger would reduce the enlarged entity's dependency on investment and corporate banking and increase retail business. Also, cutting costs will be much easier with BNP in the equation than it would be with just SocGen and Paribas. BNP estimates synergies for the trio of $1.3 billion by 2002 -- compared with only $800 million for the SocGen-Paribas deal.

The market obviously agrees that the

menage a trois

is a hotter prospect than the original coupling. The shares of BNP rose 7.24% to close Thursday at 83.00 euros and SocGen shares were up 13.33% to close at 164.90 euros.

The response from the French government was less effusive. In a direct contrast to the warm reception that greeted the news about SocGen and Paribas last month, the finance ministry and the

Bank of France

said they would examine BNP's bid "carefully, with respect to the sound functioning of the market, industrial and social issues, and the national interest."

Why the Fuss?

The "industrial issues" the government will examine center on the market concentration of retail and business banking units after the proposed merger. BNP said the new bank's market share of business banking would amount to a little over 25%, but

Salomon Smith Barney

said other calculations might bring this figure easily above 30%.

There is little doubt that the French government is less concerned about the consumer's interests than about its own. The "sound functioning of the market" that the government cites is likely a reference to the smooth execution of the carefully crafted plan to finally privatize the franc-guzzling nightmare that is

Credit Lyonnais

.

The government's plan involves assembling a group of shareholders that include BNP, and floating the rest of the bank in a public offering. The government fears that, should BNP embark upon a merger with SocGen and Paribas, it would spoil this rescue plan.

Michael Ward of

International Assets Advisory

explains the irony in this. "BNP wanted to be the largest shareholder in Credit Lyonnais -- but was rebuffed by the French government, who instead parceled it out to a group of shareholders."

A Two-Sided Coin

The "social issues" represent, of course, potential job losses. The synergies the market is applauding are the very same ones to which the unions are giving the thumbs down. Despite claims to the contrary, the new bank will almost certainly close down some branches in small rural areas where both SocGen and BNP are represented, and the unions are expected to put enormous pressure on the government to halt such closures.

"There is the French interest in building a national champion, but not at the expense of jobs," says Joe Hall,

Deutsche Bank's

head of marketing in European equities.

The final issue of "national interest" means keeping as much of French business as possible in French hands. It is here that the government finds itself in a bit of a bind. On the one hand, it wants to oppose the deal for the reasons above, but at the same time this might open up the very dark possibility that a white knight will arrive in the form of a foreign institution.

According to Salomon Smith Barney, Dutch banks

ING Barings

and

ABN-Amro

(AAN) - Get Report

are both known to have expressed interest in France. This is an anathema to the French government: It bridled at the thought of letting even a headache like Credit Lyonnais get sold to a foreign bank, which was what the

European Union

competition commissioner Karl Van Miert wanted.

BNP's bid has most definitely put the cat among the pigeons, and it remains uncertain what the likely outcome will be. International Assets Advisory's Ward believes ultimately that the BNP bid will prevail, but not until after SocGen has sweetened its bid for Paribas, and it is countered by BNP.

BNP is offering 11 of its shares for eight Paribas shares and 15 shares for seven SocGen shares. This gives a current market valuation of 106.4 euros for Paribas, an 18% premium to the current share price. The valuation for SocGen is 165.9 euros, a 14% premium.

Merrill Lynch

has a fair value of 90 euros for Paribas and 180 euros for SocGen, so the premium looks fine for Paribas but poor for SocGen.

The hoped-for consolidation in Europe's banking industry fueled by the advent of the euro is no doubt underway. If the governments would just let the shareholders decide with whom they want to partner, the marriages might be a lot happier.