Natixis, France's fourth largest listed bank, has priced its 3.7 billion euro ($5.4 billion) rights issue to repair its balance sheet at a deeper than expected share market discount of over 60 percent. The bank on Thursday set the rights price at 2.25 euros per share, offering 13 new shares for every 10 existing shares.
The price compares with Natixis's closing share price of 5.84 euros on Wednesday and follows problems faced by rival banks in attracting subscribers for their own new fundraising. A Reuters poll last week of 10 analysts gave a forecast of 3.35 to 5.50 euros for the Natixis rights issue.
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 September 5 to September 18. Natixis shares, which have been highly volatile over the year, initially fell as much as 7.4 percent but then recovered to rise by as much as 13 percent. Traders said the stock bounced on optimism that the rights issue would prove a success. The stock was up 6.7 percent at 6.23 euros in early afternoon trade, giving Natixis a market capitalisation of around 7.8 billion euros.
"The market is betting on the future success of the rights issue operation which will allow Natixis to improve its financial position," said a Paris-based fund manager who owns Natixis shares. He declined to be identified.
Analysts said existing shareholders had little choice other than to sign up to the new issue. French fund management firm HMG Finance said it would sign up to the issue. HMG Finance holds around 30,000 Natixis shares. Other fund managers were more sceptical and said they would not sign up to the issue.
"It's catastrophic," said Valerie Cazaban, the head of French fund management firm Stratege Finance. French investment house Agilis Gestion and Montsegur Finance also said they would not subscribe to the issue. "We don't have much confidence in the bank," said Montsegur Finance fund manager Francois Chaulet. Some minority shareholders, such as US fund Greenlight Capital, have opposed the rights issue but Natixis said it was vital.
"The capital increase is essential to ensure the development of our bank," said Natixis investor relations director Pierre Jacob. Natixis said the capital increase was fully guaranteed by a banking syndicate led by Credit Suisse, Merrill Lynch, Natixis itself and Lazard.
Other banks in the large syndicate are BNP Paribas, Societe Generale, Germany's DZ Bank, Fox Pitt, HSBC, Intesa, Royal Bank of Scotland, ING and Keefe, Bruyette & Woods Ltd. Like many rivals, Natixis has been forced to raise capital after suffering heavy losses from the global credit crunch. The bank has lost around 16 billion euros in stock market value since its launch.
Last month Natixis, which made its debut on the Paris stock market in December 2006 with a price of 19.55 euros, posted a second-quarter net loss of 1 billion euros after taking a 1.5 billion-euro writedown as a result of the financial market turmoil. The losses in the global financial services industry have led to a number of rights issues from leading banks.
Traders said Natixis would need a deep discount to ensure a good take-up for the deal after British banks HBOS and Bradford & Bingley recently struggled to sell their own respective issues due to difficult market conditions. Both HBOS and Bradford & Bingley saw their share prices briefly trade below the price of their rights issue offerings, and less than 30 percent of their shareholders subscribed.
French newspaper Le Monde said Natixis had approached sovereign funds in Dubai, Qatar and Singapore over its rights issue. Natixis declined to comment on this report. Natixis's capital increase follows a 5.9 billion-euro rights issue from Credit Agricole, France's biggest retail bank, earlier this year.
Also, Societe Generale, France's second-biggest listed bank, was forced into a 5.5 billion-euro rights issue earlier this year after suffering huge losses from a rogue-trading scandal within the bank. Based on latest prices, Natixis's shares have fallen roughly 50 percent since the start of the year, making them France's worst performing bank stock for the second year in a row.
The DJ Stoxx European banking sector index has fallen around 30 percent over the same period. Natixis almost never saw the light of day when French state bank Caisse des Depots (CDC) threatened to veto the creation of the bank in 2006. The CDC said it had not been properly consulted over the plan.