Loss at French Bank Raises Doubts
Saturday, January 26, 2008
PARIS, Jan. 25 -- French political figures, shareholders and bank customers on Friday voiced growing criticism and skepticism of banking giant Societe Generale's explanations of one of the largest financial scams in history.
Public doubts mounted over the bank's account that a single trader was responsible for $7.14 billion in losses, while top officials questioned why the bank waited nearly a week to announce the discovery of the massive fraud.
"It is difficult for everyone to understand how a single person, in a relatively short period of time, can cause losses as significant in a solid and reliable banking house," Prime Minister Francois Fillon said Friday at a news conference during a visit to Luxembourg.
Fillon said he has ordered his finance minister to investigate the fraud at France's second-largest bank, giving her eight days to submit her findings.
"The bank was completely irresponsible," said Frederik-Karel Canoy, an attorney representing more than 100 shareholders who have filed suit against the bank, accusing it of fraud and breach of trust. "We want to know what actually happened. It is impossible that he did it alone? . . . Of course it's easier to blame a young trader," he said in a telephone interview.
Societe Generale bought full-page advertisements in French newspapers, signed by the bank's chairman and chief executive, Daniel Bouton, asking shareholders to accept his "apologies and deep regrets."
"I fully understand your disappointment, even your anger," Bouton said in the ad. "This situation is utterly unacceptable. I don't ignore what the drop of the stock price represented for you. Please accept my apologies and my deepest regrets."
Editorial comment in many of those same newspapers was brutal.
La Tribune, a French daily business newspaper, said: "How could a bank of such caliber, known for its experience in financial markets, end up in this mess? Why did it take so long to uncover the damage?"
The bank said Thursday that a 31-year-old futures trader, later identified as Jéróme Kerviel, used his detailed knowledge of bank security programs to conduct unauthorized and falsified trades in European equities futures. The bank said he had dodged internal security systems for months in conducting the illicit trades.
The French daily newspaper Le Figaro, which has close ties to the government, reported Friday that President Nicolas Sarkozy was "furious" that he had been informed of the trading scandal Wednesday, five days after the bank said it discovered the extent of the fraud and the day before the information went public.
"It is a private bank, it therefore doesn't have any obligations," Fillon told reporters. "However, this affair is so important to the French financial system that the government could maybe have been informed earlier? . . . We'll address it in the future to Societe General's chairman."
The bank portrayed Kerviel as the architect of the fraud, and the chief of the government banking regulator commission described him as a "computer genius," but interviews with associates and former teachers in numerous French newspapers uniformly disputed such characterizations.
"If he was a genius, we didn't notice it," Dominique Chabert, the head of the finance master's degree program at Lyon 2 University, told the newspaper, Nouvel Observateur, according to its Web site Friday.
"J¿r¿me Kerviel was like any other student," Chabert said. "He was hard-working and never caused any trouble in class nor during his internships at companies."
Societe Generale has filed court documents accusing the trader of falsification of banking records and computer fraud.
Elisabeth Meyer, Kerviel's attorney, told the French television network BFM that her client "is not fleeing" and is "available for judicial authorities." She declined to disclose his whereabouts.
According to accounts in the French news media, Kerviel grew up in the town of Pont l'Abbe in Brittany in western France and received a masters degree in market finance from a university in the French city of Lyon.
Pont l'Abbe's mayor, Thierry Mavic, told French radio RTL that Kerviel was "someone with his head on his shoulders, thoughtful, a young man with no issues."
Credit-rating services have downgraded the bank's ratings, and European banks Friday urged caution or advised against buying shares in Societe Generale.
The bank, founded in 1864 under a decree signed by Napoleon III, has offices in 77 countries and 22.5 million customers worldwide. It employs about 120,000 people.
Sarkozy, on a visit to India, described the trading scam as "an internal fraud that had consequences on Societe Generale's results, but . . . has not affected the solidity and reliability of the French financial system."
"We can't equate Societe Generale's internal problems, which are the consequences of a massive internal fraud, with what happened on international markets and comes from the U.S.A.," said Sarkozy, who has been critical of the U.S. handling of the subprime mortgage crisis that has reverberated around the globe.
Some financial analysts disagreed. "Trust in markets has already been severely weakened this week," said Michel Aglietta, an economics professor at Paris 10 Nanterre University. "This case weakens investors' trust even more."