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Societe Generale is in crisis, France's economy minister said on Tuesday of the bank hit by losses piled up by a rogue trader, questions over its leadership, takeover speculation and a falling stock price.
"Societe Generale is in a crisis situation," Economy Minister Christine Lagarde told LCI television.
On January 24, SocGen said it had uncovered unauthorised trading by one of its traders that had led to $7.22 billion of losses at the 144-year-old bank.
Jerome Kerviel, a 31-year old junior trader, was freed under judicial supervision, resembling bail, after prosecutors failed to persuade judges on Monday to proceed with a full-scale fraud investigation following his massive stock market gambles.
Kerviel, who has admitted breaking bank rules but accuses others of doing the same, was placed under formal investigation over accusations of falsification, computer abuse and breach of trust. Prosecutors said they would appeal against his release.
Being placed under investigation in France can lead to trial but falls short of charges. Kerviel's lawyers were jubilant.
"There is no fraud, sir. There is no fraud. The word fraud was used by (Societe Generale Chairman Daniel) Bouton numerous times," said Kerviel's lawyer Christian Charriere-Bournazel.
"Mr Bouton held this unfortunate man up for public vilification, threw him to the dogs ... and there was no substance to it," he told reporters late on Monday.
Kerviel ran up a huge position of 50 billion euros. Instead of protecting the bank's investment as he had told supervisors, he left it exposed to the risk that shares would fall.
The trading scandal has caused SocGen shares to slump, with the bank now considered by many as a prime target for a takeover or break-up. The stock rose 2.8 per cent to 73 euros early on Tuesday.
Its management is also under attack from France's political establishment. French President Nicolas Sarkozy said on Monday that top managers had to take their share of responsibility for the affair.
"Can the management stay?" asked Lehman Brothers in a research note on Tuesday.
SocGen's plight has reignited longstanding speculation that BNP Paribas, France's biggest listed bank, might bid for it. In 1999, SocGen escaped a takeover bid by BNP Paribas.
"BNP Paribas could be interested in the franchise at a lower valuation, the sale of CIB (corporate and investment banking) would make the deal more attractive," Lehman Brothers said.
Lehman added that it saw "no reason to buy SG shares." It kept an "underweight" rating on SocGen shares but kept its price target on the stock to 95 euros.
SocGen shares closed down 3.8 per cent at 71.05 euros on Monday, giving the bank a stock market capitalisation of around 33 billion euros. SocGen shares have fallen around 29 per cent since the start of 2008 and fell 23 per cent last year. (Reuters)
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