UPDATE 4-SocGen Q2 net profit falls 63 pct, less than feared

(Releads, updates shares, adds comment from Mougard lawyer)

By Sudip Kar-Gupta

PARIS Aug 5 (Reuters) - Investment banking losses pummelled Societe Generale's (SOGN.PA) second quarter profits, although the French bank's bruised shares rose nearly 10 percent on Tuesday since many had feared worse results.

France's second-biggest listed bank, victim to the world's worst rogue trader scandal earlier this year, said net profit fell 63 percent to 644 million euros ($995.9 million).

Eighteen analysts polled by Reuters had given an average net profit forecast of 518 million euros. Gross operating profit fell 42 percent to 1.627 billion euros, also ahead of analysts' average forecast of 1.333 billion.

SocGen shares rose 9.4 percent to 65.10 euros, although the stock has still fallen some 30 percent since the start of 2008.

The DJ Stoxx European sector .SX7P rose 5.7 percent, with UK banks Lloyds TSB (LLOY.L) and HBOS HBOS.L gaining over 10 percent, while France's benchmark CAC-40 index .FCHI ended up 2.5 percent.

"The results were better than expected. The investment banking arm has not done as badly as feared," said Valerie Cazaban, fund manager at Stratege Finance, which owns SocGen shares.

SocGen had higher profits at its international retail banking and consumer credit businesses, which helped counter the investment banking loss.

Earnings were also boosted by a 262 million euro capital gain on the sale of its stake in Bank Muscat.

Its investment banking arm took a 1.2 billion euro hit due to the credit crunch, with writedowns on credit default swaps and credit derivatives. The unit had a 186 million euro net loss.

However, Cazaban said this compared favourably with results at other banks, such as Merrill Lynch MER.N and Citigroup (C.N), which posted huge second-quarter group losses last month.

"Overall, I would say it is a satisfying performance, given the environment," West LB analyst Christoph Bossmann said. He kept a "hold" rating on SocGen shares.

Other European banks have also posted lower profits. On Monday, Europe's biggest bank HSBC (HSBA.L) revealed a 28 percent fall in first-half pretax profit, while in July Credit Suisse (CSGN.VX) said second-quarter profit fell 62 percent.

BNP Paribas (BNPP.PA), France's biggest listed bank, reports second-quarter earnings on Wednesday.

KERVIEL AFFAIR

SocGen is trying to fight off the effect of the rogue trading scandal. In January, the bank unveiled 4.9 billion euros of losses it said were caused by unauthorised deals carried out by Jerome Kerviel, a 31-year old junior trader at the bank.

Kerviel was freed from prison in March after an appeal against his detention but he remains under formal investigation for breach of trust, computer abuse and falsification.

On Monday, the Paris prosecutor's office said it had placed Kerviel's former assistant under investigation for complicity in the affair. A legal source briefed on the matter said the assistant was 24-year old Thomas Mougard.

Frederique Baulieu, Mougard's lawyer, said her client denied any wrongdoing and challenged the decision to be put under investigation.

The losses from the Kerviel affair forced SocGen to raise 5.5 billion euros through a rights issue and led many analysts to regard the bank as a takeover target, though SocGen has consistently said it aims to remain independent.

BNP Paribas considered bidding for SocGen this year but ultimately ruled it out. BNP had tried to buy SocGen in 1999.

The rogue trading scandal led to widespread criticism of the SocGen management team, with French President Nicolas Sarkozy questioning SocGen Chairman Daniel Bouton's position.

In April, Bouton handed over as chief executive to Frederic Oudea, SocGen's former finance director, but he remains chairman. The company also ousted Jean-Pierre Mustier from the head of its investment banking division.

Oudea said on Tuesday that SocGen would pursue its strategy.

"Societe Generale will take advantage of the quality of its customer franchises, its solid capital position and the commitment of all its employees to pursue its strategy despite an environment that is likely to remain difficult," he said in a statement.

SocGen shares have fallen broadly in line with a 28 percent decline in the DJ Stoxx European bank sector .SX7P.

For more on SocGen's investment bank, see [ID:nL5622404] For SocGen's views on universal banking, see [ID:nL5647410]. (Editing by Marcel Michelson/Will Waterman)