SocGen in discounted rights issue

SocGen in discounted rights issue
By Yann Le Guernigou Reuters - Monday, February 11 08:08 am

PARIS (Reuters) - Societe Generale, the French bank reeling from a rogue trading scandal, launched a rights issue at a steep discount on Monday, aiming to raise 5.5 billion euros (4.1 billion pounds) to bolster its balance sheet.

The one for four rights issue at 47.50 euros per share is 38.9 percent below Friday's closing price and dilutes the share capital by some 20 percent. The bank's shares fell 6 percent to 73 euros by 8:06 a.m. British time.

SocGen revealed plans for the capital increase on January 24 when it unveiled 4.9 billion euros of rogue trading losses. Jerome Kerviel, the trader at the heart of the scandal, was jailed on Friday.

The French bank's losses related to the U.S. subprime crisis totalled 2.6 billion euros, including 600 million in write-downs that were not previously detailed.

The cash call discount is steeper than some market participants expected, with fund managers reported last week to be seeking a discount up to 30 percent.

"The price is very low. The feedback from the market cannot have been very encouraging. As they can't miss this deal they decided to strike very low," said Landsbanki Kepler banking analyst Pierre Flabbee.

A SocGen official said the discount was designed to guarantee that the rights issue would be a success against the background of the current market volatility.

"It's a very, very low price. We were not expecting such a discount. It reflects the lack of demand in the market," one Paris-based share dealer at a foreign bank said.

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

"It's priced to go -- they needed to get this out of the door, and that's a decent discount, even more than the press was indicating over the weekend," said a trader in London.

Based on Friday's closing price of 77.72 euros, the offer price implies a theoretical market value of 71.68 euros per SocGen share, Reuters calculates.

SocGen said the rights would have a theoretical value of 5.86 euros after an estimated dividend of 0.9 euros based on a payout of 45 percent against 2007 earnings. The dividend will be confirmed on the eve of its February 21 results.

The new shares will not be entitled to a dividend.

JPMorgan, Morgan Stanley and SocGen itself are book runners, and Credit Suisse and Merrill Lynch are co-book runners.

WRITEDOWN

It aims to boost its Tier One capital adequacy ratio to 8 percent.

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 600-800 million euros.

SocGen also said in a statement it aimed for a cost income ratio between 60 and 62 percent by 2009 and a return on equity of 19 to 20 percent.

On Saturday, French judges dismissed conspiracy accusations against a Paris broker, dealing a severe blow to the hunt for an accomplice to Kerviel.

The broker, named by prosecutors as Moussa Bakir of Paris brokerage Newedge, was brought before investigating judges after being questioned for 48 hours in police custody.