Receiving a Lifeline

By Reuters -  |  Posted 2008-02-11 Email Print this article Print
 
 
 
 
 
 
 

Societe Generale launched a deeply discounted 5.5 billion euros ($8 billion) capital increase to prop up its finances and heal scars from the world's biggest rogue trading scandal.

LIFELINE

The bank received a lifeline from two U.S. banks in the shape of guarantees underwriting the offer.

"The price is a big surprise. It's obviously meant to avoid the underwriting banks getting stuck with shares. In any event it contributed to market weakness this morning," said David Thebault, head of derivative sales at brokers Global Equities.

SocGen's cash call is also designed to mop up writedowns from the U.S. sub-prime crisis totaling 2.6 billion euros, including 400 million penciled in but not previously allocated.

A senior SocGen official said the discount was meant to guarantee that the rights issue would be a success against the background of the current volatility in global markets.

The discount compares with 15.5 percent offered by BNP Paribas when it raised the same amount of funds to help finance the takeover of Italian bank BNL in March 2006.

French newsletter Lettre de l'Expansion reported that BNP Paribas's top management was split over whether to launch an offer for SocGen worth 93 euros. The bank declined comment.

Shareholders can opt to avoid dilution by exchanging the rights attached to four old shares for one new share, and paying 47.5 euros in cash, or sell the rights on the market.

Based on Friday's price of 77.72 euros, less a dividend of 0.9 euros promised to holders of old shares, the deal values SocGen stock at 70.96 euros and each right at 5.86 euros.

The offer will run from February 21 to February 29.

JPMorgan, Morgan Stanley and SocGen's own investment bank are leading the deal as book runners, and Credit Suisse and Merrill Lynch are co-book runners.

SocGen has said the share issue will boost its main capital adequacy ratio, the amount of cash a bank must hold to back its lending, to 8 percent from 6.8 percent at end-2007.

The bank boosted its earlier provisional forecast for 2007 profits, saying it expected net income of 947 million euros. On January 24 it had forecast net profit of 600 to 800 million euros.

It set targets for 2008-10 which are close to current goals, with a return on equity of 19-20 percent against 20 percent now.

SocGen said it would stick by its strategy of driving growth through foreign retail banking, specialist financial services and private banking.

(Reporting by Yann Le Guernigou; Additional reporting by Nick Antonovics, Tim Hepher, Marcel Michelson, Blaise Robinson, Sitamaran Shankar, Nicolas Rialan, Laurence Fletcher, James Regan; Editing by Louise Ireland)

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