Though Société Générale (GLE) has recovered from the rogue trading scandal that brought it to its knees in January 2008 and that nearly saw it acquired by rival BNP Paribas, it has not regained investor confidence. That is becoming painfully apparent as turmoil sweeps across Europe and SocGen is losing access to funding markets. While SocGen's regulatory capital ratios are only slightly below where we'd like them to be, its tangible common equity cushion is painfully inadequate, in our opinion, especially in the face of rising losses in peripheral Europe. We think SocGen will need to raise capital to increase its equity/assets ratio to 5% in our base case and 6% in our downside case, which will probably involve a dilutive rights issue or even government intervention, depending on the speed at which the bank must be recapitalised. As such, our fair value estimate has taken a severe haircut to incorporate a capital raise into our base case.
Read the full research report for Société Générale, including economic moat, fair value estimate, and financial health and management assessments. Morningstar research is available to Morningstar.co.uk Premium subscribers.
Hear Morningstar senior banking analyst Erin Davis' overview of Europe's banks here.
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