HSBC bid talk boosts SocGen as rights issue looms

 

 

Speculation that British-based bank HSBC might bid for Societe Generale resurfaced on Wednesday as an impending $8 billion capital increase by the scandal-hit French bank loomed in the background.

On January 24, SocGen revealed $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.

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

The trading losses have left SocGen as a likely bid target.

Analysts say SocGen could attract many banks and the takeover speculation on Wednesday focused on a possible bid by HSBC for its French rival.

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

The Merrill note followed an earlier one by US investment bank Citigroup, which had also touted HSBC as a possible bidder.

"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 last month.

DISCOUNTED RIGHTS ISSUE SEEN SOON

France's top politicians have expressed their desire to keep SocGen in French ownership.

This has led analysts to see French banks BNP Paribas and Credit Agricole as best placed for any bid on SocGen. BNP Paribas, France's biggest listed bank, narrowly failed to buy SocGen in 1999.

But French broker Aurel Leven said the HSBC bid scenario was feasible.

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.

The HSBC bid speculation coincided with rumours 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 per cent, from 6.6 per cent.

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

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

The bank is expected to offer a discount of up to 30 per cent to push through the deal, traders said. (Reuters)