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18 July 2024

New twists ahead in France's rogue trader saga

By Agencies

A new court battle will be held Monday over the detention of French rogue trader Jerome Kerviel while Societe Generale is to soon launch an $8 billion (Dh29.2 billion) capital increase to cover the losses they blame on him.


The decision by a Paris appeals court on Friday to back a prosecution demand that the 31-year-old trader be held in custody was the latest twist in the worst investment banking scandal in history.


His lawyer, Elisabeth Meyer, said she would go to a higher appeals court on Monday.


The prosecution said Kerviel could influence any accomplice or witness and at the same time as the hearing was held, police questioned a broker at a Société Générale subsidiary through which Kerviel handled many of his tens of billions of dollars in European share trades.


The broker was released on Saturday but remains an assisted witness, meaning he could still face charges.


Société Générale has blamed Kerviel for 4.82 billion euros ($7.1 billion, Dh25.92 billion) of losses from unauthorised trades worth at least 50 billion euros ($73 billion, Dh266.45 billion).


He faces charges however of breach of trust, fabricating documents and illegally accessing computers.


France's Financial Markets Authority (AMF) was to meet on Friday to consider Société Générale’s  planned 5.5 billion euro ($8.1 billion, Dh29.57 billion) capital increase to cover the loss and some of the two billion euros lost on the US subprime loan market.


If it approves, Société Générale chairman Daniel Bouton could launch the capital increase in coming days.


The French bank has been shaken to the core since suspicions about Kerviel's trades were first raised on Friday, January 18. Before the weekend was over, the bank was in "potentially mortal" danger and the Bank of France had agreed a secret resuscitation plan.


According to official statements and Société Générale’s own account, the bank questioned Kerviel on Saturday.


Early on Sunday afternoon, the bank had enough information to estimate the damage: the 50 billion euros in market exposure far exceeded its shareholder funds.

Bouton informed the governor of the French central bank, Christian Noyer, who authorised him to unwind the contracts. This began on the Monday when stock markets were falling heavily, adding to its exposure.


Amid global market turmoil, the US Federal Reserves cut interest rates sharply on the Tuesday.


By Wednesday January 23, Société Générale has closed the positions. Noyer informed the French government, which was infuriated at not being told earlier, the European Central Bank and the New York Federal Reserve of the crisis.


Noyer chairs the French banking commission responsible for controlling French banks but he has insisted that "this affair has nothing to do with the Fed's monetary policy."


Early on Thursday, Société Générale revealed that a lone trader had lost it 4.8 billion euros, wiping out most of its 2007 profit.


The bank also disclosed two billion euros in losses on subprime loans in the United States and said it had investment bank guarantees for new capital of 5.5 billion euros.


A storm broke on many fronts, with talk of a takeover, that has only been eased by the capital increase plan.


BNPParibas of France, Santander of Spain, Deutsche Bank of Germany, and Italy's Intesa Sanpaolo have all been named as potential bidders for all or part of Société Générale, whose value has fallen steadily since May last year.


There is controversy over the government insistence the bank must remain French, along with criticism of internal controls at Société Générale, complaints from shareholders and parliamentary hearings into the debacle.


There is still widespread incredulity in the banking industry that Kerviel could have acted alone.


Kerviel told AFP in his first interview on February 5: "I never had any personal ambition in this affair. The aim was to earn money for the bank."


Smiling and composed, he said "I accept my share of responsibility but I will not be made a scapegoat for Société Générale."


He had "yet to fully grasp" the implications, he said.


Noyer told a parliamentary commission that on the weekend the crisis broke, Societe Generale had been in "potentially mortal" danger. (AFP)