Société Générale is one of the world’s largest equity derivatives houses, so it seems ironic that France’s second-largest bank should be brought low by the simplest of hedges.

Closing out a series of unauthorised bets on European stock market futures cost the bank €4.9 billion. This came on top of additional writedowns of more than €2 billion in the fourth quarter of 2007 - €1.1 billion on US sub-prime mortgage investments, €550 million on exposure to monoline insurers and an extra €400 million in unallocated provision.

After three days of talks with investors, SocGen yesterday announced a €5.5 billion rights issue. The additional fourth-quarter writedowns had been largely expected and the fundraising will help to repair the bank’s capital position, so the financial outlook is not dire. But nothing is likely to erase the embarrassment caused by a failure of the risk controls in SocGen, usually considered a leader at managing these kinds of threats. The trader concerned, Jérôme Kerviel, is being painted as a lone lunatic who would have circumvented the systems of even the world’s sharpest bank. Now SocGen must wait to see whether its shareholders and clients accept this explanation.

Analysts at Cazenove predicted “some client losses” and cut their 2008 net income estimate for the bank. The alleged fraud “raises questions over SocGen’s controls procedures, reputation in the core equity derivatives business and management credibility”, they said.

Opinion is mixed on whether this slump in SocGen’s fortunes will lead to a takeover approach, or whether the rights issue will provide an opportunity for one of the recently acquisitive sovereign wealth funds to snap up a stake in the bank.

The fully underwritten rights issue will no doubt be offered at a deep discount of between 20 per cent and 30 per cent. Chinese funds have been widely reported to be interested in the European financial sector and a piece of SocGen might prove a bargain. Meanwhile, a takeover is not out of the question. Unicredito, the Italian bank, was last year thought to be interested in SocGen.

But a takeover could hit a barrier in the form of the Doctrine Trichet, an informal rule under which the French Government frowns on cross-border hostile acquisitions of French companies. Just how seriously the French Government takes this doctrine could be seen last year when ministers encouraged a merger between Gaz de France and Suez to stop Enel, the Italian company stalking Suez.

In the case of the banks, however, white knights may be thin on the ground. BNP Paribas would be a natural candidate, but, given the battering it has taken in the credit crisis, it might not have sufficient surplus capital to ride to the rescue. Most other banks are in the same position. Indeed, Crédit Agricole had a smaller taste of rogue-trading trouble four months ago when unauthorised trades at its New York proprietory trading desk cost it €250 million.

Daniel Bouton, SocGen’s chairman and chief executive, who offered to resign after learning of the alleged fraud but was asked to stay on by the board, will go without a salary until June 30. The Bank of France has set up an inquiry. SocGen has filed a criminal complaint against Mr Kerviel. The trader is believed to be receiving counselling. SocGen shares were down just over 4 per cent at €75.81.

The proud French bank will survive this scandal, but it will be some time before it can hold its head high.

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