Societe Generale seeks to raise nearly $8 billion
By Emma Vandore
Associated Press Business Writer
By Emma Vandore
PARIS — Societe Generale SA, reeling from the biggest-ever loss blamed on a single trader, launched a heavily discounted rights issue yesterday, seeking nearly $8 billion to restore its position as a top-tier bank.
The fundraising comes as reports suggested that Jerome Kerviel, the trader at the heart of the scandal, exchanged regular computer text messages with a broker about his unauthorized trades. The broker was questioned by financial police last week about his contacts with Kerviel.
Societe Generale, which said last month that Kerviel's unauthorized trades cost more than $7 billion to unwind, is now seeking new capital to boost its financial standing and fund future growth.
The bank said it would offer new shares to existing shareholders at $68.94 each in a rights issue — almost 40 percent below Societe Generale's closing share price Friday of $112.80.
The discount shows "the bank wants the capital increase to succeed," said Axel Pierron, an analyst with research house Celent in Paris.
Existing shareholders will have preferential subscription rights and be able to buy one new SocGen share for each four shares held.
They can also trade their preferential rights during the subscription period for a starting price of $8.58. New shareholders must purchase four rights to buy one new share, bringing the theoretical cost of SocGen shares after the capital increase to $103.25.
"The idea is that existing shareholders follow us," Chief Financial Officer Frederic Oudea said in a conference call. "We want this to be the biggest success possible."
The subscription period will run from Feb. 21 to Feb. 29.
Societe Generale shares closed down 4 percent yesterday at $108.47, giving the bank a market value of $50.32 billion. In the past 12 months, the bank has lost nearly half of its value.
The capital increase is designed to stabilize the underpinnings of the bank and allow it to continue lending. It will use the cash to maintain lending in France and to fund growth in countries including Russia, Brazil and India, as well as those in central and eastern Europe.
Societe Generale 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. A report by the French Finance Ministry faulted the bank's controls for not halting the unauthorized activity by Kerviel.
Jean-Pierre Mustier, head of the company's corporate and investment banking arm, said in a conference call a number of measures have been taken to improve security including monitoring nominal, and not just net, exposure of traders and the introduction of biometric requirements in place of passwords. Kerviel is accused of using other employees' passwords to circumvent the bank's controls.
Kerviel was sent to La Sante prison in southern Paris on Friday pending further investigation.
Since Kerviel's actions came to light, analyst Pierron said major banks worldwide have been reviewing their security and control systems "because they know very well at a given moment they also could have a weakness."
Societe Generale bank has become the subject of takeover rumors, with crosstown rival BNP Paribas mulling a bid. Both Mustier and Oudea declined to comment on potential bids.
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 predicted.