29 January 2008

Pressure builds on SocGen chief to quit

SocGen denies insider trading as the French Finance Minister says the bank is in crisis and may need to 'change the captain'

France’s finance minster has put fresh pressure on Daniel Bouton, the embattled chairman and chief executive of Société Générale, by suggesting that he may need to quit and stating that the country's second largest bank is in "crisis".

In a television interview today, Christine Lagarde signalled that Société Générale needed a change of leadership to recover from the world’s biggest trading scandal, involving the increasingly infamous trader Jérôme Kerviel who notched up €4.9 billion (£3.7 biollion) in losses from share trades.

In a marked change of tone from yesterday when the Government backed Société Générale's assertion that Mr Kerviel had acted alone, Ms Lagarde said: “Société Générale is in crisis.

In a difficult moment, the board members are there to decide if the person in charge is the best placed to run the ship when it is pitching a bit, or whether they should change the captain.”

Mr Bouton’s departure would create a major succession problem for Société Générale. Jean-Pierre Mustier, his heir apparent, runs the investment division that employed Mr Kerviel. Ms Lagarde will submit a report on the trading scandal at Société Générale on Monday, at the request of Prime Minister Francois Fillon.

This morning, Société Générale issued a statement regarding the sale of shares worth nearly €100 million by one of its board directors, Robert A. Day, days before the scandal broke.

Documents released yesterday by the AMF, the French market regulator, showed that Mr Day sold €85.7 million in shares on January 10. Also, two trusts connected to Mr Day, offloaded large chucks of shares on the same day — the Robert A. Day Foundation sold €8.6 million in stock and the Kelly Day Foundation sold €959,066. The AMF is due to send a report on the events at Société Générale to Ms Lagarde on Friday.

Société Générale said today that Mr Day and his family trusts sold shares from December 2007 and up to January 18 when, according to the bank, Mr Kerviel's superiors were informed of the irregular share deals and in turn told the divisional management. The bank disclosed yesterday that "abnormal counterparty risk" was "detected several days earlier" than January 18.

The bank said that the period during which Mr Day sold his shares "was a window of time were such trades were permitted under Société Générale's trading policies for directors".

Société Générale added: "No inside information was used in any way with respect to these December and January sales.

"In particular, before these trades were made, Mr Day, like the other board members, was not advised of Mr. Kerviel's trading losses. Neither was he advised, like the other non-executive board members, that additional subprime-related write-downs or reserves would be made.

"Such writedowns and reserves were presented to the board for the first time on January 20, 2008. Mr. Day has pledged his cooperation into any inquiries of this matter."

A group of around 100 Société Générale investors have brought the suit against the bank.

Mr Day, 65, is the founder of TCW, a Los Angeles investment company which is a subsidiary of Société Générale's asset management group.

TCW, based in Los Angeles, has a portfolio of $66 billion in collateralised debt obligations (CDOs) of which $52 billion are under management for Société Générale Asset Management.

CDOs are complex financial instruments which are often backed by sub-prime mortgage debt. Société Générale revealed last week it has €4.9 billion in CDOs backed by US sub-prime mortgage debt.

Ms Lagarde's comment came just hours after Nicolas Sarkozy, the French President, turned up the heat on Societe Generale’s top managers on Monday evening.

The President said that they would have to accept their share of responsibility for the trading loss run up by Mr Kerviel. Mr Sarkozy said: “When you have a fat salary, no doubt entirely legitimate, and then a big problem crops up, one cannot expect to wash one’s hands of responsibility.”

Mr Bouton offered his resignation when the scandal emerged last week but was asked to stay on by Société Générale's board. He said yesterday that his resignation remained on the table.

Mr Kerviel, freed on bail last night, has admitted concealing billions of euros’ worth of secret deals. However, he has accused others of breaking the bank’s rules by making traders that exceeded Soc Gen's parameters.

He was placed under formal investigation over accusations of falsification, computer abuse and breach of trust. Mr Kerveil’s lawyers were jubilant as being placed under investigation in France can lead to a trial but falls short of charges.

Christian Charrière Bournazel, Mr Kerviel’s lawyer, said late last night: “There is no fraud, sir. There is no fraud. The word fraud was used by Mr Bouton numerous times.

“Mr Bouton held this unfortunate man up for public vilification, threw him to the dogs ... and there was no substance to it.”

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Lebanon Time-Line

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