By Marcel Michelson and Sudip Kar-Gupta
On January 24, SocGen revealed 4.9 billion euros ($7.2 billion) of losses which it said were caused by rogue trades conducted by Jerome Kerviel, a 31-year old trader at the bank.
The trading losses have left SocGen as a likely bid target.
French politicians have emphasized their desire to protect
SocGen from foreign predators, but U.S. investment bank Merrill
Lynch
"In our view much of the debate on the strategic end-game for SocGen has focused on the need for a French solution to a French problem," said Merrill.
The persistent bid speculation has helped SocGen shares recover since sinking to a 52-week low of 66.80 euros last month. The stock closed up 3.2 percent at 81.75 euros, valuing SocGen at roughly 38 billion euros.
France's top politicians have expressed their desire to keep SocGen in French ownership.
But French broker Aurel Leven said the HSBC bid scenario was feasible.
"This will also enable HSBC to address some of the criticism formulated by KVAM regarding its lack of size in France, its underperforming CIB (corporate and investment banking) and its lack of exposure to growth markets," it said.
The HSBC bid speculation coincided with rumors that SocGen would announce details of a rights issue, an offering of common stock, shortly.
The rights issue is designed to lift SocGen's key Tier 1 risked-weighted capital solvency ratio to 8.0 percent, from 6.6 percent.
SocGen said on January 24 its 2007 profit would be 600 million to 800 million euros and the AMF French market regulator must decide whether this disclosure provides enough financial information to allow the bank to go ahead with the capital hike now.
The bank is expected to offer a discount of up to 30 percent to push through the deal, traders said.
"People are saying that SocGen on a standalone basis minus the takeover-premium is worth about 70 euros. So a rights issue would have to be below that. The price range being mentioned is quite wide, from 57-70 euros," said Gautier, whose portfolio includes SocGen shares.
"It makes no sense for them to do it ahead of the results," said the London-based analyst, who declined to be named.
