Business and Finance

Shares in French bank Societe Generale (SOGN.PA: Quote, Profile, Research, Stock Buzz) slumped for a second day in a row on Tuesday, with traders citing a possible exposure to an unexpected share price surge at carmaker Volkswagen (VOWG.DE: Quote, Profile, Research, Stock Buzz).

The Volkswagen share price rise threatened to catch out banks and hedge funds that might have bet on a fall in the Volkswagen stock.

“All you would need would be to have shorted Volkswagen shares with too much leverage, and you’d be facing colossal losses,” said a fund manager in Paris.

SocGen shares were down 14 percent at 32.67 euros in late afternoon trade, the biggest loser on France’s benchmark CAC-40 index .FCHI. The stock fell 15.6 percent on Monday.

SocGen underperformed a 3.5 percent fall in the DJ Stoxx European bank index . Rival French banks also fell sharply, with BNP Paribas (BNPP.PA: Quote, Profile, Research, Stock Buzz) down 11 percent and Credit Agricole (CAGR.PA: Quote, Profile, Research, Stock Buzz) down 12 percent.

SocGen’s share slump gave it a market capitalization of around 20 billion euros ($25.02 billion) — roughly the same level as Credit Agricole.

Volkswagen stock was up 31 percent as short sellers continued to pile into the shares following a move by rival Porsche (PSHG_p.DE: Quote, Profile, Research, Stock Buzz) to buy up much of VW’s remaining free float.

Banks with large market trading operations were targeted as the most likely to have been hurt by the Volkswagen situation one hour cash advance loan. Wall Street investment banks Goldman Sachs (GS.N: Quote, Profile, Research, Stock Buzz) and Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz) were down about 10 and 15 percent respectively.

Deutsche Bank (DBKGn.DE: Quote, Profile, Research, Stock Buzz) fell 7 percent.

SocGen could not be immediately reached for comment.

Earlier on Tuesday, it had earlier moved to reassure investors by saying it was sticking by its profit forecast and had no bad surprises in its market operations.

“Societe Generale reiterates the information communicated in its press release of October 13, 2008,” a spokeswoman said.

“(It) underlines the fact that should any events necessitate a communication to the market, Societe Generale would communicate the requisite information without delay, permitting a clear assessment of the situation,” she said by email.

It has predicted a third-quarter net attributable profit of 1 billion euros excluding non-recurring items.

“Societe Generale has nothing specific to communicate regarding its capital markets activities, in particular equity derivatives, despite the difficult market conditions in October,” the spokeswoman said earlier on Tuesday. 

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