Soci?t? G?n?rale has sought to guarantee the success of its €5.5 billion (£4.1 billion) rights issue by pricing the new shares at a hefty 39 per cent discount to the current price.
The French bank is raising cash to plug the hole in its finances left by the biggest rogue trader scandal in history. In a move that suggested that it had little confidence in its ability to attract investors on normal terms, it said that it would issue 116.6million new shares priced at €47.5, compared with a closing price of €77.72 on Friday. The offer took the market by surprise, driving SocGen’s shares down 4 per cent to close at €74.59 in Paris.
Analysts had expected a discount of 20 to 30 per cent. Many said that Daniel Bouton, the bank’s embattled chairman, risked upsetting SocGen’s existing investors, whose stakes will be diluted by the issue of one new share for every four existing shares.
Commentators said that Mr Bouton had made the bargain offer in an attempt to avoid a fresh failure, which could sever the already thin thread by which he is clinging to his job.
Most analysts predicted that the share issue would be fully taken up during the subscription period from February 21 to 29, without recourse to JPMorgan and Morgan Stanley, the banks underwriting the operation.
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“As they can’t afford this operation to go wrong, they’ve decided to hit very low,” Pierre Flabb?e, of Landsbanki Kepler, said.
In a further sign of SocGen’s desperation, it agreed to pay €143 million in fees to the banks running the capital increase - 2.6 per cent of the total, compared with a usual rate of between 1.5 and 2 per cent. Groupama, the French insurer, which has a 3.5 per cent stake, said that it would subscribe to its full allocation.
As it unveiled the capital increase, SocGen also said that it would have to pay corporate tax on a €1.4 billion hidden profit made last year by J?rôme Kerviel, the rogue trader, before his bets went spectacularly wrong. The bank is seeking to reduce the bill by including the bulk of Mr Kerviel’s €6.3 billion losses in its 2007 accounts.
The group also said that it had revised its expected 2007 profits upwards, from €800 million to €947 million. In 2006, it made €5.22 billion. Writedowns linked to the sub-prime crisis were also higher than the €2.05 billion announced in January and stood at $2.6 billion, SocGen said.
Analysts said that the bank remained exposed to a takeover, with BNP Paribas and Cr?dit Agricole, the French banks, the favourites.
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Fight for release from jail
— J?rôme Kerviel, the French trader whose losses forced Soci?t? G?n?rale to go cap in hand to investors yesterday, was stunned by his incarceration last week, according to his lawyer.
— Maître Elisabeth Meyer said that Mr Kerviel, 31, thought “the sky had fallen on his head” when the Paris Appeal Court ruled that he would be detained in custody. She said: “He felt betrayed because he had always respected his obligations.”
— After saying that she would ask France’s highest court, the Court of Cassation, to release him today, Maître Meyer backtracked to say that she would submit an appeal “very rapidly”. She said: “This injustice mustn’t last too long”
— Mr Kerviel, who has a cell on his own in La Sant? jail in Paris, told her: “I’m going to resist” when she saw him this weekend, she said.