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01 October 2023

Pressure piles on SocGen as report due, trial starts

By Agencies


Societe Generale, the French bank hit by a trading scandal, faced further pressure on Monday with a government report set to criticise its risk control and as an unrelated money-laundering trial starts.

On January 24 SocGen revealed $7.28 billion of losses due, the bank said, to rogue trades done by Jerome Kerviel, a 31-year old employee at the bank, who is now under investigation and faces possible charges.

SocGen's trading scandal shocked both financial markets and France's political establishment.

French Economy Minister Christine Lagarde is due to present a report into the SocGen trading debacle on Monday, and French newspaper Les Echos said the report would criticise SocGen's middle office controls.

Five to six flaws have been indentified and the report will say that while control mechanisms worked, the bank did not react on the signals given, Les Echos said.

A spokesman at the French Economy Ministry said he had no comment to make on the Les Echos report.



The bank has already faced widespread criticism of its risk control systems since unveiling the trading losses.

Last week, a Paris prosecutor investigating the Kerviel trading case said that in November 2007, derivatives exchange Eurex had already warned SocGen about suspicions it had regarding Kerviel's trading positions.

The bank took out full-page advertisements on Monday to reassure its clients they could still count on the company.

The La Tribune newspaper said that SocGen's planned 5.5 billion euro capital increase may start later this week and would be priced at a 'sizeable' discount to the share price.

The Le Parisien paper said that a court case in which a SocGen equities derivatives trader who was fired from SG Cohen in New York and is seeking 1.8 million euros in damages for unjust dismissal starts on February 20.

SocGen also faces a legal challenge in a high-profile money laundering trial which starts on Monday and covers events dating back to the 1990s.

SocGen is one of four banks due to appear at the Paris criminal court in a trial known as "Sentier 2", due to its links with the capital's Sentier textile district.

The other three banks in the case are HSBC unit Societe Marseillaise de Credit (SMC), Barclays France and National Bank of Pakistan.

The alleged money laundering took place between 1996 and 2001 in the Sentier area of the city and involved stolen or fraudulent cheques shuttled between France and Israel.

SocGen reiterated on Sunday that it had not taken part in any money laundering.



SocGen's weakened position has made it the subject of bid speculation involving rival French banks BNP Paribas and Credit Agricole.

Over the weekend, French President Nicolas Sarkozy's chief of staff Claude Gueant emphasised that France preferred any bid for SocGen to be "friendly" rather than hostile and for it to come from a French company rather than a foreign one.

SocGen shares closed up 5.5 per cent at 87.80 euros on Friday, giving the bank a stock market value of around 40 billion euros.

BNP Paribas, France's biggest listed bank, has said it is looking at making an offer for SocGen. Its shares closed down 0.8 per cent at 65.28 euros, giving BNP Paribas a market capitalisation of roughly 60 billion euros. (Reuters)