×

SocGen Posts Record Q4 Loss, May Take More Writedowns

Societe Generale confirmed a record fourth-quarter loss after absorbing a huge rogue trading scandal that has made France's second-biggest listed bank a potential takeover target.

ScoGen_sign.jpg

SocGen, like many of the world's top banks, has 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 bank 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.

The 3.35 billion euro ($4.93 billion) quarterly loss coincided with an internal report acknowledging that better systems might have prevented the costly stock market gambles it blames on trader Jerome Kerviel.

"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 slumped 6 percent on Wednesday, closed 2.3 percent lower.

The bank has a current market capitalisation of around 31 billion euros.

Absence Of Controls

On Jan 24, SocGen announced 4.9 billion euros of trading losses which it blamed on 31-year-old Kerviel, who is now in detention pending an investigation into falsification, computer abuse and breach of trust. Fraud accusations were dropped.

SocGen has also booked huge writedowns related to the credit market turmoil caused by losses in the U.S. housing market and SocGen said more provisions were possible.

"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 plug the losses and pay for a 2 billion euro writedown linked to the sub-prime crisis, SocGen has launched a 5.5 billion euro rights issue.

The new shares went on sale at a steep discount of 47.40 euros on Thursday.

"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," she said.

SocGen's board has so far stood by Bouton, resisting political pressure to sack him over the scandal which has shaken France's political and financial establishment.

Bouton offered to resign but was asked to stay on.

In a move seen by financial commentators as trimming Bouton's 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".

However, the report supported SocGen's previously expressed view that Kerviel acted alone.

"At this stage of the investigations, there is no evidence of embezzlement or internal or external accomplice," the report said.

Some work still needs to be done to confirm that the entire impact of Kerviel's trading had been identified, it said.

Kerviel has acknowledged making unauthorised trades but told police the bank must have known of his activities.

The head of the Bank of France has said SocGen lacked adequate risk control resources, particularly human ones.

The SocGen rogue trading scandal, the world's biggest, has coincided with a string of weak results and writedowns from financial institutions reeling from losses related to U.S. subprime mortgages.

Earlier this month, UBS posted a fourth-quarter net loss of 12.45 billion Swiss francs ($11.37 billion) while U.S. banks Merrill Lynch and Citigroup both reported fourth-quarter net losses of $9.8 billion in January.

SocGen shares have fallen around 28 percent since the start of 2008, versus a 16 percent fall in the DJ Stoxx European bank sector.

The shares fell 23 percent last year.