Société Générale's already-battered shares fell more than 4% in Paris trading on Feb. 11, to €74.59 ($108.22) a share, after the bank announced a heavily discounted $8 billion capital increase to help offset losses from a rogue trading scandal and bad U.S. real estate investments. SocGen (SOGN) shares have fallen nearly 50% over the past year but had risen slightly since the scandal was disclosed Jan. 24 on speculation the bank could be a takeover target.
"We offered attractive terms in a volatile market," SocGen Chief Financial Officer Frédéric Oudea said in a conference call, explaining why existing stockholders will be able to buy additional shares for €47.50 ($68.91), a 39% discount on the Feb 8 closing price. Outside investors will have to buy additional dividend rights that would raise the cost to €71 ($103) per share, the bank said.
Also on Feb. 11, SocGen disclosed it suffered an additional $871 million in losses related to the U.S. real estate market, on top of $2.9 billion in subprime-related losses disclosed earlier this year. Among European banks, SocGen now ranks second in its subprime exposure, behind UBS (UBS)—though the Swiss bank's losses of $18 billion are much higher (BusinessWeek.com, 1/30/08).
SocGen won't release official 2007 results until Feb. 21, but it is forecasting net earnings of $1.3 billion, down from nearly $7.8 billion in 2006.
Tightening Oversight of Traders
During the conference call, Oudea and Jean-Pierre Mustier, head of SocGen's investment banking unit, declined to discuss the latest twist in the investigation of rogue trader Jérôme Kerviel, focusing on the possible involvement (BusinessWeek.com, 2/8/08) of an employee of SocGen's futures brokerage Newedge, known until recently as Fimat. Police questioned the employee, Moussa Bakir, over the weekend, but released him from custody.
However, Mustier outlined steps SocGen has taken to tighten oversight of its trading operations, including daily reconciliation of traders' positions and an ironclad requirement that all traders must take at least 15 days' annual vacation. The 15-day rule was already in effect, but "an exception was made" for Kerviel, who told investigators he took only four days off during 2007.