Kerviel remains obstacle to SocGen recovery

By Sudip Kar-Gupta

PARIS (Reuters) - Jerome Kerviel may have left the company but his shadow still looms large over the share price of French bank Societe Generale.

SocGen is still feeling the effects of the world's worst rogue trading scandal even if France's second-biggest listed bank has made some recovery since the debacle occurred.

"Mistrust remains over Societe Generale's complex market activities. Retail customers also remember the bank's errant ways, which means that the number of new accounts opened hasn't risen much, to the advantage of BNP," said Montsegur Finance fund manager Francois Chaulet.

In January, SocGen (SOGN.PA) unveiled 4.9 billion euros (3.8 billion pounds) of losses which it said were caused by rogue deals carried out by Kerviel, a 31-year old junior trader at the bank. Kerviel is under formal investigation for breach of trust, computer abuse and falsification.

Goldman Sachs said that while SocGen's franchise remained impacted by the Kerviel affair, the company's second quarter results this month -- which beat market forecasts despite showing a slump in earnings -- would reassure shareholders.

"While the group encompasses an attractive collection of assets, the value of these assets has been overshadowed by uncertainties around CIB (corporate and investment bank) franchise strength following the fraudulent trading losses," Goldman said in a research note published on August 7.

"We believe that Q2 2008 results go a long way to ease these concerns," it added. Goldman kept a "buy" rating on SocGen and added the bank to its "Conviction List" of preferred stocks.

Goldman added that SocGen shares had an "upside potential" of nearly 30 percent. Others were less sure.