How Long Can SocGen Survive?

Posted by: Carol Matlack on February 11

You can almost smell the blood on the floor at Société Générale. On Feb. 11, the embattled French bank unveiled a planned $8 billion capital increase that prices shares at an unexpectedly cheap 47.50 euros, a 39% discount to the closing price on Feb. 8. By midday in Paris, SocGen shares had slumped more than 3% on the news.

Of course, SocGen doesn’t have much choice. Besides a staggering $7.1 billion hit from rogue trader Jérôme Kerviel’s losses, the bank said on Feb. 11 that it it suffered an additional $871 million in losses from U.S. subprime investments, on top of $2.9 billion disclosed earlier. That means SocGen has been harder hit by the subprime crisis than any European bank except UBS – though the Swiss bank’s losses of $18 billion are more than four times as high.

SocGen won’t release 2007 results until Feb. 21, but it is forecasting net earnings of $1.34 billion, down from $7.57 billion in 2006.

It’s looking less and less likely that this wounded bank can stay independent. CEO Daniel Bouton is widely expected to step aside after overseeing the capital increase, which will run from Feb. 21 to 29.

Predators are already circling. French rival BNP Paribas has confirmed it is studying a takeover bid. France’s Crédit Agricole hasn’t talked publicly, but is known to be interested in SocGen’s investment-banking business.

British bank HSBC also had been considered a possible suitor, but British newspapers reported over the weekend that HSBC was planning to sell about half of its 800 French retail outlets. That would appear to rule out a bid for SocGen.

In any case, takeover by a foreign bank seems unlikely because the French government has said it wants to keep SocGen in French hands. One plausible scenario: BNP would get SocGen’s extensive network of branch banks, which it has long coveted, while investment-banking activities would go to Crédit Agricole.