IE 11 is not supported. For an optimal experience visit our site on another browser.

Societe Generale posts $4.91 billion loss

Troubled French bank Societe Generale SA said Thursday that a $7 billion trading scandal and the credit crisis in financial markets led to a fourth-quarter net loss.
/ Source: The Associated Press

Troubled French bank Societe Generale SA said Thursday that a $7 billion trading scandal and the credit crisis in financial markets led to a fourth-quarter net loss.

France’s second-largest bank said it lost 3.35 billion euros ($4.91 billion) compared with a 1.18 billion euro profit in the same period of 2006.

The French bank took a 4.9 billion euro ($7.18 billion) hit closing the unauthorized positions of futures trader Jerome Kerviel. Though it discovered the positions on Jan. 18, the losses that resulted were booked in the fourth quarter.

Shares rose 0.3 percent to 66.81 euros ($97.92) in Paris morning trading. The stock has lost roughly half of its value this year.

Societe Generale is seeking 5.5 billion euros (nearly $8 billion) in new capital to shore up its finances after the trading loss and 2.6 billion euros ($3.8 billion) in previously announced writedowns linked to the U.S. mortgage crisis.

The Paris-based bank announced preliminary results Feb. 11 in a prospectus for investors taking part in a drive for new capital.

CEO Daniel Bouton said in a conference call Thursday that initial contacts with investors went “very well.”

Analysts say Societe Generale needs the new funds to ward off a hostile takeover. France’s largest bank BNP Paribas SA, has said it is mulling a bid.

“Societe Generale needs to succeed at this capital increase which is needed to preserve a certain independence,” said Axel Pierron, an analyst with research house Celent in Paris.

For the full year, SocGen confirmed a net profit of 947 million euros ($1.4 billion), compared with 5.2 billion euros in 2006.

The trading scandal is “an isolated event,” said Pierron. “Without this event, the results of Societe Generale were not at all bad.”

Without the trading losses, Societe Generale said it would have gained 4.17 billion euros ($6.11 billion) over the full year.

The scandal, however, has raised questions about the bank’s control procedures.

An internal report on Wednesday said bank officials failed to follow up on dozens of warnings about questionable trades.

The report commissioned by a committee of three independent board members detailed 75 warnings signs in Kerviel’s exchanges, such as a trade with a maturity date on a Saturday or a missing broker name.

Analyzing what went wrong, the report said “no initiative was taken to check the truth of affirmations” provided by Kerviel, “even when they lacked probability.”

The signals weren’t always flagged to superiors and “when the hierarchy was warned, they didn’t react,” the report said.

Kerviel claims his superiors must have known what he was doing but that they looked the other way when he was making money.

Bouton vowed “total transparency” in the case in order to maintain the bank’s reputation.

His offer to resign over the affair has been twice rejected by the bank’s board despite calls from French President Nicolas Sarkozy for top executives to face the “consequences” of the huge losses.

Full-year revenue fell 2.2 percent to 21.92 billion euros ($32.13 billion), from 22.42 billion euros in 2006. Fourth-quarter revenue dropped 32 percent to 3.88 billion euros ($5.69 billion), from 5.67 billion euros a year-earlier.

The bank warned of the possibility of more write-downs in the first quarter at its asset management division as the liquidity crisis in financial markets continues.

Banks globally have written off more than $150 billion in the past half-year, including large fourth-quarter write-offs by European competitors such as UBS AG and Credit Suisse.

Societe Generale’s subprime-related writedowns are bigger than the 589 million euros ($868.3 million) announced Wednesday by cross-town rival BNP Paribas SA but are dwarfed in comparison with the $13.7 billion announced by UBS.

SocGen said it is proposing a 2007 dividend of 90 euro cents ($1.32) a share compared with 5.20 euros the year before.