Société Générale inaugurated a €4.8bn Rights Issue on Tuesday to repay a government bail-out, following the lead set by BNP Paribas, France‘s biggest bank, last week.
Société Générale, the country‘s third biggest bank, said it would use the money to repay the government‘s €3.4bn capital aid, of which half is in the form of preference shares and the rest a subordinated loan.
The bank also revealed it was in talks with Dexia to buy the remaining 20 per cent of Crédit Nord it did not own and hinted at further acquisitions. The capital increase would also permit the bank ”to seize potential external growth opportunities”, it said.
The move comes a day after President Nicolas Sarkozy said he expected another big bank to repay state money this week, according to the Financial Times on Tuesday.
Société Générale is the third French bank to start repaying government money and follows a slew of European and US banks, including Switzerland‘s UBS, Goldman Sachs, JPMorgan and Morgan Stanley.
Like BNP, which last week announced a €4.3bn Rights Issue, Société Générale has taken advantage of the buoyancy in stock markets to inaugurate a cash call. Crédit Mutuel, the private mutual bank, last week repaid €1.2bn of a subordinated loan, plus an undisclosed amount of interest.
Crédit Agricole, the second largest bank, has said it is in ”no hurry” to repay its €3bn of subordinated loans, while BPCE, the large mutual bank, said it would only start considering repayment of its €7bn of state aid from next year.
It is the second time in less than two years that Société Générale has called on shareholders, following the €5.5bn rights issue in January 2008 to repair the damage done by the Jérome Kerviel trading scandal.
The two-for-nine share issue is priced at €35 a share, a 26.9 per cent discount to the theoretical ex-rights price - a measure that looks at the capital structure of the group after the new shares are created, based on Monday‘s closing price of €52.20.
The recovered from early losses to stand one per cent higher in afternoon Paris trading.
The rights issue and the purchase of the Crédit Nord stake would leave the group‘s tier one ratio - a measure of balance sheet strength - at 9.7 per cent pro forma as at June 30, up from 9.5 per cent, and a core tier one ratio of about eight per cent.
The impact on earnings per share would be neutral in 2010, the bank said.