Société Générale, the bank at the centre of the biggest rogue trading scandal in history, has been forced to offer investors a heavier than expected discount to make sure its €5.5bn (£4.1bn) rescue fund raising completes without a hitch.
Yesterday, SocGen officially launched the capital increase it had announced on 24 January in the wake of the €4.9bn trading losses incurred by unauthorised positions taken by derivatives trader Jérôme Kerviel.
The bank's chief financial officer Frédéric Oudéa outlined the structure of the rights issue, which comprised an offer price of €47.5, a 39 per cent discount, on the basis of one new share for four existing shares. After the announcement, the bank's share price slid 4 per cent to €74.59. The rights issue is underwritten by JP Morgan and Morgan Stanley.
One source close to the group said: "SocGen is not taking any chances. It is a big discount, which is a signal that it just wants to get the fund raising done." An analyst added: "The discount is bigger than many expected, but it will not be a problem for the bank. A rights issue was much better than placing the capital with something like a sovereign wealth fund."
The subscription period for shareholders to take up the offer starts on 21 February and closes eight days later. M. Oudéa said investor response to the plan had been "very positive. We are fully confident over their reaction".
The source close to SocGen said the strong feedback from investors had allowed the bank to bring forward the launch date of the rights issue, which had been expected after its results later this month.
The need for the cash injection arose after M. Kerviel had circumvented the bank's systems to build futures positions worth €50bn. The losses were sparked when the bank unwound these positions into a falling market. The capital increase will also help cover the writedowns from the US sub-prime crisis, which amounted to €2.6bn last year.
Jean-Pierre Mustier, chief executive of SocGen's investment banking operations, said the group had learnt its lessons from the Kerviel episode. He added that 100 professionals were working with outside specialists to rectify the systems issues, and added the upgrades would cost the bank €50m this year.
SocGen's executives would not be drawn yesterday on the talk that the group had become a takeover target in the wake of the scandal. M. Oudéa refused to comment on whether the bank had been approached by rivals, believed to include BNP Paribas and Crédit Agricole, saying: "We do not comment on market speculation."
M. Mustier did not totally rule out interest in the 400 French branches put up for sale by HSBC this week, saying "domestic consolidation could be profitable", but added the group was more focused on development in emerging markets.
M. Mustier said bonuses, which were announced internally on Friday, were lower this year. He said the falls in remuneration were not related to the one-off trading losses, but the market condition in the wake of the credit crunch. "We paid out lower bonuses this year just like every other bank."Reuse content