PARIS, Sept 17 A crucial 3.7 billion euro rights issue by French bank Natixis (CNAT.PA) could turn sour with the share trading close to the issue price one day before the deadline, analysts said.
"No-one is going to subscribe. I personally have no desire to subscribe," said Iris Finance fund manager Michael Sellam. French fund management company Stratege Finance also said it would not subscribe.
This would leave the majority owners with the bulk of stock.
Although the highly volatile shares of Natixis were up 6 percent at 2.65 euros in early afternoon trade, the stock price of France's fourth-largest listed bank remained close to the right issue price of 2.25 euros.
Natixis has a current market capitalisation of around 3.3 billion euros ($4.69 billion). It launched the issue this month to shore up its capital after losses stemming from the global credit crisis with write-downs on complex debt instruments.
British banks HBOS HBOS.L and Bradford & Bingley BB.L recently saw their share prices trade below the level of their respective rights issue offerings, and fewer than 30 percent of shareholders subscribed to those deals.
Investment bank Citigroup said the deal was looking tricky due to the bank's weak share price and its recent disclosure of an exposure to failed U.S. bank Lehman Brothers LEH.P.
"Natixis' exposure to Lehman, combined with increased concern over its cost of funding, explains the current share price performance, which we believe could make the rights issue execution difficult," Citigroup said in a research note.
French mutual banks Groupe Caisse d'Epargne and Banque Populaire, which together own nearly 70 percent of Natixis, have committed to subscribing to the issue. The subscription period runs from Sept. 5 to Sept 18.
The capital increase is fully guaranteed by a banking syndicate led by Credit Suisse CSGN.VX, Merrill Lynch MER.N, Natixis itself and Lazard (LAZ.N).
Other banks in the large syndicate are BNP Paribas (BNPP.PA), Societe Generale (SOGN.PA), Germany's DZ Bank, Fox Pitt, HSBC (HSBA.L), Intesa (ISP.MI), Royal Bank of Scotland (RBS.L), ING ING.AS and Keefe, Bruyette & Woods Ltd.
LOW TAKE-UP FOR ISSUE?
Low subscription levels for the rights issue could leave the likes of Merrill, Credit Suisse, Banque Populaire and Caisse d'Epargne with unwanted and lowly-valued Natixis stock.
A postponement of the rights issue due to the recent market slump following the collapse of Lehman and the bailout of insurer AIG (AIG.N) would further weaken Natixis' reputation.
"If there were to be a postponement -- previously a convertible issuance planned before the summer was cancelled -- the market may question Natixis' credibility," said Citigroup.
Despite this, recently-launched French fund management company Hixance Asset Management said it had decided to sign up to the issue by buying a few thousand Natixis shares.
"There is a strong potential of a rebound in the stock and the bank has a good solvency ratio," said Hixance Asset Management fund manager Stephane Chossat. Natixis has a Tier 1 ratio of around 9 percent.
"Arbitrage traders are selling the stock to buy up the Natixis rights issue shares," he added.
Some analysts have also speculated that Banque Populaire and Caisse d'Epargne might be forced to buy out the whole of Natixis and delist it if its share price performance remained weak.
Natixis was floated on the Paris stock market in December 2006 with a debut price of 19.55 euros.
The bank was formed from the merger of Banque Populaire's investment banking arm Natexis with the IXIS investment bank division of Caisse d'Epargne.
Natixis shares have fallen nearly 70 percent since the start of the year, making it France's worst performing bank stock. (Editing by David Cowell)