HSBC bid talk boosts SocGen as rights issue looms

PARIS (Reuters) - Societe Generale was primed to launch a 5.5 billion euro ($8.1 billion) capital increase on Wednesday in the wake of huge trading losses that have made the French bank a potential takeover target.

On January 24, SocGen revealed 4.9 billion euros of losses which it said were caused by rogue trades conducted by Jerome Kerviel, a 31-year old trader at the bank.

Kerviel has been placed under formal investigation for breach of trust, computer abuse and falsification and released under judicial supervision, which resembles bail.

Analysts say SocGen could attract many possible bidders, and the takeover speculation on Wednesday focused on a possible bid by British-based HSBC for its French rival.

French politicians have emphasized their desire to protect SocGen from foreign predators, but U.S. investment bank Merrill Lynch said an HSBC/SocGen combination could possibly win the approval of the French establishment.

"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.

"However, if we assume that the ingredients for a 'French solution' could include a bank with a Paris Stock Exchange listing, head office on the Champs-Elysees and domestic French operations, then none of this precludes HSBC's involvement," it added.

The persistent bid speculation has helped SocGen shares recover since sinking to a 52-week low of 66.80 euros last month. The stock was up 4.1 percent at 82.44 euros in early afternoon trade, valuing SocGen at roughly 39 billion euros.

Although many analysts see France's biggest listed bank BNP Paribas as best placed for any SocGen bid, brokers at Aurel Leven said HSBC would be attracted by SocGen's respected investment banking division.

DISCOUNTED RIGHTS ISSUE SEEN

HSBC bought French bank CCF in 2000 and Aurel Leven said buying SocGen might allay some of the criticism made of HSBC by activist shareholder Knight Vinke Asset Management (KVAM).

"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.

HSBC declined to comment on the Merrill report, while Keefe, Bruyette & Woods analyst Jean-Pierre Lambert said he did not think HSBC would bid for SocGen.

SocGen's board is due to meet later on Wednesday and could launch the share rights issue then, a source close to the bank said. The bank is expected to offer a discount of up to 30 percent to push through the deal, traders said.

"We might see someone coming in and blocking the capital increase with a takeover offer, that's the rumor today," said a Paris-based trader with a foreign brokerage.

"The timing is indeed very bad for a capital increase, with markets falling on fears of recession after more weak U.S. data. In this negative macro environment, it won't be easy to raise 5.5 billion," the trader said.

SocGen's rights issue, which will be underwritten by JPMorgan and Morgan Stanley , is designed to lift the bank's key Tier 1 risked-weighted capital solvency ratio to 8.0 percent, from 6.6 percent. This includes the effect of a raised stake in Russia's Rosbank and compares with a ratio of 7.2 percent at BNP Paribas.

A possible obstacle to a quick capital hike is uncertainty over the bank's financial performance ahead of February 21 results.

SocGen said on January 24 its 2007 profit would be 600-800 million euros and regulator AMF must decide whether this disclosure provides enough financial information to allow the bank to go ahead with the capital hike now.

AMF chief Michel Prada told Reuters the regulator would study SocGen's capital increase plans closely in coming days.

GSD Gestion fund manager Christophe Gautier said SocGen would have to price a rights issue below 70 euros.

"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.

Last week, France last week warned off foreign predators, sparking a clash with European Union officials over the bloc's fair competition rules and leaving French banks BNP Paribas and Credit Agricole as the front-runners.

BNP Paribas has said it is looking at SocGen while Credit Agricole is also interested and could team up with BNP Paribas to try to break up SocGen, analysts say.

(Additional reporting by Blaise Robinson, Andrew Hurst, Yann Le Guernigou, Elena Moya, Peter Starck, Sudip Kar-Gupta, Kerstin Leitel and Tim Hepher; Editing by Jon Boyle)