Aug. 28 (Bloomberg) -- Natixis SA, the French bank seeking 3.7 billion euros ($5.5 billion) in new capital, reported a second-quarter loss that exceeded analysts' estimates on writedowns tied to struggling U.S. bond insurers.

Natixis fell 3.9 percent in Paris trading today after the company posted a net loss of 1.02 billion euros, compared with the 669 million-euro median loss estimate of nine analysts surveyed by Bloomberg.

The bank reported 1.51 billion euros of markdowns on debt backed by bond insurers and on subprime-linked securities, and said it plans to scale back its investment bank. Shareholders will meet tomorrow to authorize the rights offer. Credit Agricole SA, a larger competitor, rose in Paris after its second-quarter results eased concern it would need to raise more money.

``Both banks grew too fast in corporate and investment banking,'' said Alain Tchibozo, a Paris-based analyst at ING Wholesale Banking. ``The two companies will have to restructure their investment banks very deeply.''

Natixis fell 22 cents to 5.47 euros, bringing this year's decline to 58 percent. The stock dropped yesterday after French daily La Tribune said the bank may sell shares at a discount of 30 percent to 40 percent, or even more, to ensure the success of the rights offer.

Rights Offer Concerns

``The market is focused on the details of the capital increase and management didn't speak of it,'' said Amandine Gerard, a fund manager at Richelieu Finance, which oversees $6.2 billion in Paris. ``That's what is worrying investors.''

Natixis follows Paris-based Societe Generale SA and Credit Agricole in turning to shareholders for more capital this year. The bank was formed in 2006 from the merger of the investment- banking and asset-management units of France's Groupe Caisse d'Epargne and Groupe Banque Populaire. Each own 34.5 percent of Natixis and have agreed to guarantee the stock sale.

David Einhorn, president of U.S. hedge fund Greenlight Capital Inc., urged Natixis Chief Executive Officer Dominique Ferrero in an Aug. 18 letter to seek alternative means of raising capital, describing the rights offer as ``enormously destructive'' to shareholders' interests.

He urged Natixis to sell part of the 20 percent non-voting stakes it holds in its parent companies back to Caisse d'Epargne and Banque Populaire, a transaction Einhorn said would be ``superior'' to the proposed stock sale.

Doesn't See `Logic'

Ferrero, 61, told reporters today he doesn't ``see the logic'' of Einhorn's position, which would reduce earnings from French retail banking, one of Natixis's most stable businesses. The stakes in the two banks contributed 246 million euros to Natixis's profit in the first half, down from 352 million euros a year earlier, the Paris-based bank said in a statement.

Natixis's investment bank had a 1.28 billion-euro loss in the second quarter because of asset writedowns, compared with a profit of 293 million euros a year earlier. Earnings at the asset management division slipped 12 percent to 67 million euros from 76 million euros a year earlier.

The bank, which has cut about 95 jobs at its securities unit so far this year, plans to eliminate another 450 employees, said Jean-Marc Moriani, who heads the investment bank. Most of the reductions will be made by the end of next year, he said. The unit employed 5,660 at the end of 2007.

Natixis plans to reduce the portion of its capital allocated to the corporate and investment bank to 46 percent by 2010 from 52 percent last year. A ``sharp decrease'' in proprietary trading is planned, as well as a reduction of risk in real estate, leveraged buyouts and commodities, and in countries including Russia, India and Turkey.

Growth Targets

The bank said today it will aim for average growth in net banking income, excluding the impact from the crisis, of 4 percent annually between 2007 and 2010. Revenue on that basis slid about 17 percent in the first half of 2008 from a year earlier. Natixis set a goal to lower its costs to 63 percent of income by 2010, and aims to raise return on equity, a measure of profitability, to 12 percent by 2010 and 14 percent over the ``medium term.''

Credit Agricole, the hardest hit in France by the global credit collapse, has announced 6.5 billion euros of writedowns tied to the U.S. subprime mortgage crisis and in May replaced the head of its securities division. Calyon, the investment-banking unit, posted a third straight quarterly loss.

Chief Executive Officer Georges Pauget, 61, is reorganizing Calyon after the bank raised 5.9 billion euros last month and lifted the Tier 1 capital ratio to 8.9 percent as of June 30. It remained at that level at the end of the second quarter, the company said today.

``Investors are hanging onto the news about solvency, that's the good news of the report,'' said Gerard at Richelieu Finance.

Net income at Credit Agricole fell 94 percent to 76 million euros in the second quarter from a year earlier.

To contact the reporter on this story: Fabio Benedetti-Valentini in Paris at fbenedettiva@bloomberg.net

Last Updated: August 28, 2008 12:24 EDT