The battle of the French banks was called off before a shot was fired yesterday as market turbulence forced BNP Paribas to walk away from a bid for Société Générale.

The window of opportunity, which opened for BNP Paribas when Jérôme Kerviel plunged its rival into the biggest rogue trader scandal in history, snapped shut after the Bear Stearns rescue.

Sources close to BNP Paribas, France's biggest bank by market value, said that it could not risk an offer for SocGen, the second-biggest, amid the turmoil that has gripped financial markets.

“BNP Paribas wishes to make it clear that it has ceased to study the possibility of a tie-up with Société Générale,” the group said in a statement that bars the bank from making a bid for six months, under French stock exchange rules.

The announcement, after two months of hesitation, was welcomed by investors. BNP Paribas's share price closed up 4.65 per cent at €60.76.

Analysts said that BNP Paribas would have struggled to hive off SocGen's investment banking unit, which overlaps with its own, and would have faced political resistance and union anger over job cuts in the retail banking division

“This comes as a relief — a takeover bid from BNP now would have been a bad idea,” Alain Dupuis, an analyst at Oddo Securities, said.

Although SocGen's share price lost speculative value to close 7.07 per cent down at €62.44, Daniel Bouton, its embattled chairman, was savouring a victory after two months of crisis sparked by Mr Kerviel's unauthorised stakes and sub-prime writedowns. He is keen to maintain his bank's independence and especially keen to prevent it falling into the hands

of Michel Pebereau, BNP Paribas's chairman. France's two most illustrious financiers have loathed each other since Mr Pebereau launched an unsuccessful hostile bid for SocGen in 1999.

A source close to SocGen described BNP Paribas's withdrawal as a humiliation, which showed that merger plans were flawed. The source said that a tie-up would have resulted in smaller dividends for shareholders and would have been risky and illogical.

Nevertheless, BNP Paribas continued to suggest that a deal remained possible at a future date once the banking sector had emerged from sub-prime chaos.

Executives ruled out a hostile bid for SocGen because of “a lack of visibility in the present climate”, a source in Paris said, hinting that the profits of Mr Bouton's institution could slump further this year after an 82 per cent fall in 2007.

BNP Paribas said that a friendly merger would have been feasible but had been ruled out by SocGen's opposition.

Pierre Flabbée, an analyst at Landsbanki-Kepler, said: “A hostile bid at the moment would have been a leap in the dark. They wouldn't have had access to the accounts, which is a bit risky at the present time.”

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