SocGen sets rights issue to repay state, make buys

A general view of the headquarters of French bank Societe Generale in the La Defense business district near Paris, August 5, 2009.

PARIS (Reuters) - French bank Societe Generale (SOGN.PA) launched a 4.8 billion-euro ($7.0 billion) rights issue to repay state support and fund takeovers on Tuesday, a week after BNP Paribas (BNPP.PA) made a similar move to tap its investors for 4.3 billion euros.

Claude Gueant, chief of staff at the Elysee palace, told Le Figaro newspaper on Tuesday evening that all French banks would shortly have paid back their loans, and that the French state would have generated 500 million euros in interest from them.

With market conditions improved SocGen did not want to be last in the queue of lenders seeking new share capital to rebuild their balance sheets and pay back the expensive state aid they received in the depths of the credit crisis.

Shares in SocGen closed up 2.85 percent at 53.66 euros, while the DJ Stoxx European banking sector index .SX7P closed up 3.27 percent.

SocGen hopes to raise more than it needs to pay off the French state's funding of 3.4 billion euros, thereby improving its core Tier 1 capital adequacy ratio as well as giving it room to make acquisitions in the retail and private banking sectors over the next 18 months or so.

"The fact that a number of banks had announced their intention to reimburse the state led us to decide," Chairman and Chief Executive Frederic Oudea told Le Monde newspaper. "The situation continues to normalize on the markets. Capital increases will multiply in the next months."

"We didn't want to be the first ones, neither the last ones to do this," he added at a news conference.

DEXIA TO SELL CREDIT DU NORD STAKE

SocGen also said its third-quarter business and operating income performance was similar to that of the first half, helped by growth in French retail banking and that it would use some of the proceeds of the rights issue to acquire full ownership of retail banking subsidiary Credit du Nord.

SocGen said it has already begun talks with Dexia (DEXI.BR) to buy the Belgian-French financial services group's 20 percent stake in Credit du Nord, a deal they said they expect to complete before the end of the year.

David Thebault, head of quantitative trading at Global Equities, estimated the stake to be worth some 510 million euros. Its book value at the end of June was 508 million euros, Dexia's annual report shows.

Oudea said SocGen would focus acquisitions on retail banking, mainly in central and eastern Europe and around the Mediterranean, and on private banking.

SocGen's private banking unit head said last month it was working on several merger and acquisition opportunities and that it would consider a deal that could provide a "quantum leap."

CAPITAL CUSHION

Under the rights issue SocGen is offering two new shares for every nine held at 36 euros a share -- a 31 percent discount to Monday's closing share price of 52.20 euros and a 27 percent discount to the theoretical ex-rights price. The subscription period will run from October 9 until October 20.

It plans to repay the state's 3.4 billion euros worth of subordinated debt and preference shares in November, while BNP said last week its new share issue would enable it to repay 5.1 billion euros plus interest of 226 million euros over the coming months.

BNP's 1-for-10 rights offer set a price of 40 euros, a discount of 29 percent on the previous day's closing price and 27 percent on the theoretical ex-rights price.

Analysts said SocGen had put itself in a safer position with its call for more cash than it immediately needs, cushioning itself against new capital rules for banks which are expected to be ushered in following the meeting of G20 nations last month.

"We don't know yet what the fine print of conditions will be from the G20 meeting of banks raising equity," Jean Sassus, an analyst at brokerage Raymond James said.

"There are two ways to deal with it: either you wait for the details and then decide how much you want or you shoot first, like Societe Generale did, raising equity in excess of what you need now and you won't be trapped when everybody else will need equity because of new regulation."

CAPITAL RATIOS

Societe Generale said that taking account the rights issue, the repayment of aid and the acquisition of the Credit du Nord its Core Tier One capital adequacy ratio would have been 8.8 percent at June 30, and the Tier One ratio 9.7 percent.

SocGen's proforma Core Tier One capital ratio would put it ahead of rivals like Deutsche Bank (DBKGn.DE) and UniCredit (CRDI.MI) and behind Barclays (BARC.L) and Casa.

The bank said the capital increase would have a neutral impact on its earnings per share in 2010, which according to Thomson Reuters I/B/E/S are estimated to be 3.29 euros against 3.27 euros before the transaction.

($1=.6840 euros)

(Reporting by Caroline Jacobs; Additional reporting by Raoul Sachs; Editing by Greg Mahlich)