PARIS (AFP) — Societe Generale on Monday unveiled its bid to raise 5.5 billion euros to plug a hole left by a rogue trader scandal that dented confidence in the French bank and left it exposed to takeover bids.
It launched a deeply discounted capital increase that will test investors' faith in the bank, which is also suffering from huge losses due to the US subprime crisis.
Societe Generale, which estimates losses allegedly run up by rogue trader Jerome Kerviel at 4.9 billion euros (7.1 billion dollars), also revealed Monday that its exposure to the meltdown in the US high-risk mortgage market now totalled 2.6 billion euros instead of the two billion it previously said.
The new stock will go on sale at 47.50 euros per share, about 40 percent below their level at the close of trade on Friday, in France and eight other European countries from February 21 to 29, it said.
Existing shareholders can buy one new share for every four they now hold.
News of the discount immediately knocked down Societe Generale's share price, which fell 6.0 percent on the Paris CAC 40 at Monday's opening but later recovered to a drop of 4.66 percent at 74.10 euros.
The stock closed the day day down 4.03 percent at 74.59 euros while the broader market fell 0.57 percent.
"The market did not price in such a big discount," a Paris dealer said, while Natixis analysts said investors had been expecting a price of around 60 euros per share.
"The psychological signal is not positive," Deutsche Bank analysts argued in a note to clients.
The new stock issue will be underwritten by investment banking powerhouses JPMorgan and Morgan Stanley, which means that the two US banks will buy up any shares not sold on the market.
The risk for the investment banks is that Societe Generale's share price might, because of market turbulence or due to fresh revelations about the rogue trader scandal, fall below the subscription price for the new stock.
Top executives from Societe Generale plan to visit the bank's investors in several countries to try to persuade them to take part in the operation,
The French insurer Groupama, the biggest institutional investor in Societe Generale, has said it will buy at the least 3.5 percent of the shares on offer, which matches its current 3.5 percent holding in the bank.
Societe Generale said Monday that taking into account its setbacks from the trading scandal, which it blames on 31-year-old Kerviel, and the subprime crisis in the United States, its net profit for 2007 came to around 947 million euros.
It announced that it would seek the 5.5-billion-euro (8.0-billion-euro) capital increase on January 24, the same day that it revealed the rogue trader's losses.
Since then takeover talk has swirled around Societe Generale, with French banks BNP Paribas and Credit Agricole seen as the most likely candidates.
Kerviel was jailed on Friday after a Paris appeals court backed a prosecution demand that he be held in custody in connection with the worst investment banking scandal in history.
His lawyer said she would soon take the case to a higher appeals court. Kerviel, who has vowed not to be a scapegoat for Societe Generale, faces charges of breach of trust, fabricating documents and illegally accessing computers.
He escaped more serious charges of fraud.
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