The troubled French bank Natixis is asking its shareholders to pony up billions in additional funds — but at a huge 61% discount. This is a bank that is in deep trouble. Every country has one bank on the brink from Bradford & Bingley to IKB to Merrill Lynch and Lehman Brothers to Natixis. Will this scheme work?
French companies used to abhor issuing shares at a discount. Even in the depths of its crisis five years ago, France Telecom issued €15bn of shares at a tight discount. The credit crunch has ended the squeamishness. Société Générale and Crédit Agricole recently issued shares at discounts of about 40 per cent. Natixis is exploring even greater depths.
France’s fourth biggest bank has launched its €3.7bn rights issue at a 61 per cent discount. That is steep but it is not the discount that investors look at. The “real” discount – the difference between the rights price and where shares should trade after allowing for dilution – is 41 per cent. To find a comparable European markdown you need look at that exemplar of value destruction, Alitalia, which three years ago issued 10 shares for each existing one at a real discount of 39 per cent.
The cut price should ensure that Natixis gets the deal away. Still, the bank is taking no chances. The two French mutuals that own 70 per cent of Natixis have pledged to take up their rights. Underwriters have been engaged to move the rest. And in case of an extreme event, the mutuals have agreed to buy the rights the underwriters cannot move. In short, this is an issue that cannot fail – perhaps because the money raised will pay back the mutuals for capital they had already advanced to Natixis to bolster its balance sheet.
Is such circumlocution worth it? Natixis could have raised funds in other ways – for example by selling down its non-voting 20 per cent stake in its parents. Minority shareholders had no say in the matter, although other investors have made their views clear. The sovereign wealth funds that Natixis apparently hoped would participate walked away. A wise decision, given that Natixis has been France’s worst-performing bank stock for two years running.
Natixis tente d’obtenir le soutien de fonds souverains – Le Monde
Natixis to Sell Stock at 61% Discount to Lift Capital – Bloomberg
European banks: still undercapitalised