SocGen seeks to raise $8 billion in heavily discounted capital hike
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By EMMA VANDORE
AP Business Writer
PARIS (AP) -- French bank Societe Generale SA hopes to raise nearly $8 billion in a heavily discounted rights issue launched Monday, designed to fill a gap in funds blamed on a massive trading scandal.
France's second largest bank said it will offer new shares at 47.50 euros ($68.94) in a rights issue, in which existing shareholders will get the first chance to buy the shares. The offering price for shareholders is almost 40 percent below SocGen's Friday closing share price of 77.72 euros ($112.80).
Existing shareholders will be able to buy one new share for each four shares held.
SocGen said the rights issue is needed to "strengthen the company's equity" after massive unauthorized bets, allegedly made by trader Jerome Kerviel on European futures markets.
"It's crucial," said Axel Pierron, an analyst with research house Celent in Paris. The discount shows "the bank wants the capital increase to succeed."
The bank says it cost nearly 5 billion euros (more than $7 billion) to unwind Kerviel's positions. A report by the French finance ministry faulted internal controls at the bank.
The capital increase will allow the group's tier 1 ratio, a measure of financial strength, to be restored to 8 percent, the bank said.
Societe Generale also announced write-downs of 2.6 billion euros ($3.77 billion) related to the fallout from the U.S. mortgage crisis, bigger than the 2.05 billion ($2.98 billion) announced in January. The bank said the January figure relates only to the fourth quarter and did not include residential mortgage-backed securities.
In a prospectus for investors, Societe Generale also said net profit for 2007 was 947 million euros ($1.37 billion), more than 600 million euros ($871 million) to 800 million euros ($1.16 billion) announced in January.
The 5.5 billion euro subscription period will run from Feb. 21 to Feb. 29 and is being managed by JPMorgan Chase, Morgan Stanley and Societe Generale Corporate ing, the bank said.
Kerviel, a 31-year-old futures trader, was sent to La Sante jail outside Paris on Friday in a broadening investigation.
The bank said it intends to "draw lessons from recent events and strengthen our control procedures and anti-fraud measures" in the first half of the year in its corporate and investment banking division.
"Very clearly, certain mechanisms of internal controls of Societe Generale did not function, and those that functioned were not always followed by appropriate modifications," French Finance Minister Christine Lagarde said last week after submitting a report into the trading scandal.
Since the massive losses at Societe Generale were revealed, Pierron said major banks worldwide have been reviewing security and control systems "because they know very well at a given moment they also could have a weakness."
Chief Executive Daniel Bouton, whose resignation has so far been refused by the board, will keep his job at least until after the capital increase and possibly beyond, Pierron said.
Bouton provides a "certain stability" to the bank and there are few candidates of his caliber, he said.
Societe Generale also announced a number of new targets following an efficiency study launched last year which it said will lift gross operating profit by 1 billion euros a year by 2010.