SocGen Controls Lacked Depth: Internal SG Report

PARIS (Reuters) – An internal investigation by Societe Generaleinto a massive trading loss blamed on a single trader has foundcontrols at the French bank lacked depth, a report published by thebank showed on Wednesday.

SocGen said last month that rogue deals by Jerome Kerviel, a juniortrader at France’s second-biggest listed bank, had caused a 4.9billion-euro ($7.2 billion) loss.

The report supported SocGen’s previously expressed view that he acted alone.

"At this stage of the investigations, there is no evidence ofembezzlement or internal or external complicity (i.e. the existence ofa third party who knowingly assisted the fraudster to conceal hispositions)," the report said.

"The investigations are continuing, in particular, to cover a widerarea than the activities of the author of the fraud," it added.

Kerviel, 31, has been placed under formal investigation for breachof trust, computer abuse and falsification and is being held in a Parisprison.

The internal report reiterated that he started building upnon-authorized trading positions in 2005 and 2006 for "small amounts,"but that they got bigger from March 2007 onwards.

By the time SocGen discovered what was going on in late January,Kerviel had amassed a position worth 49 billion euros which SocGen hadto unwind between January 21 and January 23 in an already-falling stockmarket.

The bank’s woes have renewed speculation that it could be a takeovertarget for France’s largest listed bank, BNP Paribas.


Press commentators have said that one of the problems might havebeen that Kerviel was eager to please his bosses after failing to get abonus of the same scale as his peers.

The SocGen report said Kerviel got a 60,000-euro bonus for 2006. Heasked for a 600,000-euro bonus for 2007 but instead received half that.

The report said Kerviel’s deception included rogue deals on warrantswith a deferred start date, futures contracts and "forwards" dealsusing a counterparty within SocGen itself.

"The General Inspection department believes that, on the whole, thecontrols provided by the support and control functions were carried outin accordance with the procedures, but did not make it possible toidentify the fraud before January 18th 2008," the report said.

It also said SocGen was already taking measures to shore up its risk controls, including biometric security controls.

The report comes a day before SocGen posts 2007 results. SocGen saidlast month it expected its 2007 net profit to fall 82 percent to 947million euros, implying a 3.35 billion-euro loss for the fourth quarteralone.

SocGen shares closed 6 percent lower at 71.15 euros on Wednesday,giving the bank a market capitalization of about 33 billion euros.

The stock is down nearly 30 percent since the start of 2008,compared with an 18 percent fall in the DJ Stoxx European bank sector .SocGen shares dropped 23 percent in 2007.

(Editing by Braden Reddall)

($1=.6794 euro)

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