Societe Generale, France’s second largest bank, will raise $8 billion by selling stock in a rights offer, with the purpose of replenishing working capital. A rights offering involves the raising of capital by giving existing shareholders the right to purchase new shares in proportion to their holdings. In this case, shareholders can buy one share for every four held. The shares are usually priced at a discount to market price. SocGen stock is being sold at a 39% discount to the February 8th closing price, much higher than what analysts had expected.
Is SocGen in dire need? Well, after a $7.16 billion trading loss from one, lone, rogue trader, and a $3 billion write-down linked to risky US mortgage-backed securities, it just might seem that way. The bank’s corporate and investment banking units reported a loss of $3.2 billion in all of 2007, compared to a gain of $3.4 billion the previous year. Net income for 2007 fell to $1.4 billion from $7.5 billion in 2006.
Pierre Flabbee, from Kepler Equities in Paris, described the rights issue “a matter of life or death” to the survival of the company. Ouch.