France vows to defend 'crisis' bank
French government said that Societe Generale is in "crisis" after huge losses caused by a rogue trader but vowed to defend it against hostile takeover bids.
PARIS, January 31, 2008 - The French government said Tuesday that Societe
Generale is in "crisis" after huge losses caused by a rogue trader but vowed
to defend it against hostile takeover bids.
Finance Minister Christine Lagarde said Societe Generale is "in a crisis
situation" as she added to pressure on bank chairman Daniel Bouton over the
handling of the 4.9 billion euro (7.15 dollar) losses blamed on junior trader
But Prime Minister Francois Fillon added: "The government is very attentive
to any risk of destabilisation of Societe Generale."
"The government will not allow Societe Generale to be the target of hostile
raids by other banking establishments."
France's top two banks BNP Paribas and Credit Agricole are said to be
poised to pounce on Societe Generale, France's third biggest bank by market
Kerviel, 31, was placed under formal investigation on Monday for breach of
trust, using false documents and breaching computer laws. The prosecution is a
appealing against a decision by judges to release Kerviel on bail.
The spotlight is now moving to the bank's chairman with President Nicolas
Sarkozy suggesting Bouton should be held accountable for the biggest losses in
the history of investment banking.
"We are in a system where, when you have a big salary, which is without
doubt legitimate, and there is a big problem, you cannot escape your
responsibilities," Sarkozy said late Monday.
The finance minister and Justice Minister Rachida Dati said it was up to
Societe Generale's board to decide Bouton's fate.
The bank meanwhile rejected claims that an American member of its
supervisory board, Robert Day, had inside information about the rogue trader
losses when he made two major share sales this month.
The bank said in a statement that Day "was not advised" about the colossal
losses when he sold 40.5 million euros worth of shares on January 18, when
suspicions of unauthorised trading first emerged, and 85.7 million euros in
shares on January 9.
Two foundations linked to the American investor also sold shares on January
"All required disclosures were made. No inside information was used," the
A group of 100 Societe Generale shareholders on Monday filed suit alleging
insider trading and manipulation of share prices while two other groups of
small shareholders are also taking legal action.
Kerviel is the only Societe Generale employee to have been placed under
formal investigation in the case. He faces charges of breach of trust,
falsifying and using false documents and breaching computer procedures.
But investigating judges did not approve the more serious charges of fraud.
If found guilty of breach of trust, Kerviel would face a maximum sentence
of three years in prison and a fine of 370,000 euros (186,500 dollars).
Providing the first clues on Kerviel's motives, prosecutor Jean-Claude
Marin said Monday that Kerviel started concealing deals in late 2005 and that
"he wanted to be seen as an exceptional trader" and hoped to get a big bonus.
According to Marin, Societe Generale challenged Kerviel several times about
risky operations, and each time he produced fictitious documents to justify
Kerviel's lawyers have accused the bank of turning on their client as part
of a bid to "create a smokescreen" to cover up wider losses from the US
subprime mortgage crisis.
The trader had held positions worth about 50 billion euros (73 billion
dollars) when irregularities were first detected -- well in excess of the
bank's market value of 35.9 billion euros and its shareholder funds.
He had bought futures in three European indices -- the Eurostoxx, the DAX
in Frankfurt and the FTSE in London -- effectively betting on the future
direction of the stock market.
The case dwarfs that of Nick Leeson, who lost 1.5 billion dollars as a
Singapore-based trader at Barings, causing the collapse of the British bank in