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SocGen in Record Q4 Loss, May Take New Writedowns
PARIS (Reuters) - Societe Generale (SOGN.PA) confirmed a record fourth-quarter loss of 3.35 billion euros ($4.93 billion) after absorbing a huge rogue trading scandal that has made France's second-biggest listed bank a potential takeover target.
The loss coincided with an internal report acknowledging that better systems might have prevented the costly stock market gambles it blames on junior trader Jerome Kerviel.
SocGen, like many of the world's top banks, has also been hit by losses related to a global credit crunch and the bank warned it may make further writedowns in the future.
Executive Chairman Daniel Bouton told Reuters the 144-year-old firm was determined to ride out the storm as an independent bank, despite reports of a potential bid from long-time suitor and arch-rival BNP Paribas (BNPP.PA).
"I am completely determined to continue with our strategy because, even taking into account our very bad year in 2007 due to the financial crisis and this fraud, it's this strategy which creates and will create the most value for shareholders," Bouton said in an interview. "This is my opinion, and it's one that's backed by the board."
SocGen's fourth-quarter net loss compared with a 1.18 billion euro profit a year earlier and a fourth-quarter profit of 1.0 billion euros unveiled by rival BNP Paribas, although BNP Paribas' results were down from the year before.
SocGen cut its 2007 dividend to 0.90 euro from 5.20 euros.
SocGen shares, which fell 6 percent on Wednesday, were down 0.6 percent at 66.22 euros in late afternoon trade. The bank is worth around 31 billion euros at current prices.
On Jan 24, SocGen announced 4.9 billion euros of trading losses which it blamed on Kerviel. The 31-year-old is in detention pending a judicial investigation into allegations of falsification, computer abuse and breach of trust.
SocGen also booked a total of 2.9 billion euros in writedowns related directly or indirectly to the credit market turmoil triggered by losses in the U.S. housing market and SocGen said more provisions were possible in asset management.
Provisions taken in 2007 include 2.6 billion euros in its core investment banking arm, 276 million euros in asset management and 49 million euros at headquarters.
"The purchase of assets originating from SGAM (Societe Generale Asset Management) funds invested in credit-type underlyings could continue in Q1 2008 and, given the situation in the credit markets, lead to further write-downs," the bank said in its results statement.
To shore up its balance sheet, SocGen has launched a 5.5 billion euro rights issue. The new shares went on sale at a steep discount on Thursday. Analysts at Dresdner Kleinwort said the rights issue would not deter BNP if it wanted to make a bid.
"They've made some huge mistakes," said GSD Gestion fund manager Jacques Gautier, although Gautier added he would subscribe to the SocGen rights issue. "I've bought the rights to the new shares. It's not very expensive."
However, Stratege Finance fund manager Valerie Cazaban said she would steer clear of SocGen shares for now. "Our feeling is that the stock is going to fall to new lows in the coming days."
SocGen's board has resisted political pressure to sack Bouton over the scandal, which shook France's political and financial establishment, and rejected his offer to resign.
In a move seen by financial commentators as trimming his powers, however, the board assigned the task of investigating the losses to a panel of independent board members under former car company boss Jean-Martin Folz.
The Folz report, issued on the eve of Thursday's results, said the bank's failure to spot Kerviel's activities stemmed in part from the "absence of certain controls which had not been anticipated and which could have identified the fraud."
The report supported SocGen's previously expressed view that Kerviel acted alone. Some work still needs to be done to confirm the entire impact of his trading has been identified, it said.
Kerviel has acknowledged making unauthorized trades but told police the bank must have known of his activities.
Bouton has called Kerviel's trades an "exceptional fraud."
The Bank of France says SocGen lacked adequate risk control resources, however, particularly human ones.
SocGen was fined $5 million in the United States in 2003 for inadequate controls and supervision in a smaller fraud case at its then subsidiary SG Cowen. The unit has since been sold.
This year's trading scandal, the world's biggest, has coincided with a string of weak results and writedowns from banks reeling from losses related to U.S. subprime mortgages.
Earlier this month, UBS (UBSN.VX) posted a fourth-quarter net loss of 12.45 billion Swiss francs ($11.37 billion) while U.S. banks Merrill Lynch MER.N and Citigroup (C.N) both reported fourth-quarter net losses of $9.8 billion in January.
* Interview with Daniel Bouton, see [nPAC009274].
(Additional reporting by Tim Hepher; Editing by Paul Bolding, David Cowell)
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