SocGen fallout to trigger review

SocGen fallout to trigger review

By Peggy Hollinger and Martin Arnold

Published: February 3 2008 22:07 | Last updated: February 4 2008 02:23

French banking regulations could be tightened by the government on the suggestions of a finance ministry report into the rogue trading scandal at Société Générale.

The report, being prepared by the ministry and the Bank of France, will be handed to Prime Minister François Fillon on Monday.

It is expected to form the basis for the government’s reaction to the scandal, which led to a €4.9bn ($7.2bn) loss at SocGen and threw the credibility of the bank, and France’s financial system, into doubt.

SocGen’s troubles will be compounded on Monday when its chairman, Daniel Bouton, is forced to interrupt an investor roadshow in support of the bank’s €5.5bn emergency rights issue to appear in a French court. Mr Bouton has been summoned over money-laundering charges concerning a dirty cheques ring between 1996 and 2001.

The bank says it is innocent of any wrongdoing But the court appearanceputs greater pressure on Mr Bouton, who is facing fierce criticism for failing to rein in what some observers have described as a culture of arrogance that dominated the equity derivatives business. Jérôme Kerviel, a lone rogue trader, is alleged to have bet €50bn of the bank’s money on unauthorised futures trading.

Mr Bouton last week received the support of SocGen’s board but was put under the watch of a special three-strong crisis committee of independent directors.

The report will examine how French authorities, as well as SocGen’s own internal controls systems, responded to alarms set off last year by Eurex, Europe’s largest derivatives exchange.

It is expected to make recommendations on improvements to the regulatory system.

According to Les Echos, the French financial daily, the report criticises the functioning of SocGen’s trading rooms and highlights five or six failures in its control systems, particularly in the middle office. It says that, while SocGen’s controls did work, the bank itself did not pay enough attention to alarm signals such as that sent by Eurex.

Several SocGen executives, including the head of compliance, have been questioned about their reaction to alerts raised over Mr Kerviel’s trading. The scandal appears to have left SocGen vulnerable to a bid, with rivals BNP Paribas and Credit Agricole last week expressing interest. But Claude Guéant, Secretary General and President Sarkozy’s closest adviser, said any offer should be friendly, even if from a French bank – the solution preferred by the government if a bid was inevitable.