Shares in Société Générale (SG) fell by 7.1 per cent to €68.58 in early trading after Citigroup slashed the bank's possible target price by 50 per cent saying the French bank is suffering "damaged credibility" and is unlikely to be taken over.

Citigroup, which today downgraded the scandal-hit French bank’s shares from a "buy" to a "sell" and reduced its target price from €130 per share to €65, reducing its market price tag from €72.9 billion to €36.4 billion.

The US investment bank said that it expects Société Générale’s earnings to fall by 31 per cent in 2008, after France's second largest bank discovered a €4.9 billion (£3.7 billion) alleged fraud it is blaming on Jérôme Kerviel, a trader who is in police custody.

Mr Kerviel will discover at 13:00 GMT today whether he will be released or face further investigation.

The man who lost his bank £3.7bn

Jerome Kerviel committed the biggest financial fraud in history after gambling away £3.7 billion on the stock market

• US may have rogue to thank for huge rate cut

• €4.9 billion? They wouldn't notice

• Did rogue trader set off world market panic?

Background

• Citigroup hammers SocGen on 'damaged credibility'

• French minister says €5bn trader 'acted alone'

• Furious Sarkozy kept in dark over €5bn fraud

• Chairman already faces laundering charges

Multimedia

• Video: Battered but not beaten

Background

• Q&A: how the web of fictional clients was found

• What now for a proud bank laid low?

• Doubt over genius claims for €5bn fraudster

Related Links

• Societe Generale explains the fraud

• Timeline: How SocGen says it discovered the fraud

• Did rogue trader set off world market panic?

Citigroup said in a note, "Fading Star or Bid Stock": "We believe the company's risk appetite will be contained for some time. CIB (Corporate and Investment Banking) operations are likely to be in decline, with challenging market conditions and damaged credibility dragging on earnings."

Citigroup said that Société Générale has significant exposure to US sub-prime mortgage debt.

These include a €4.9 billion portfolio of collateralised debt obligations, which are complex financial instruments linked to sub-prime loans, as well as a €4.3 billion of assets related to monoline insurers, ie, companies that insure one type of debt and are viewed by many as the new threat to global financial stability.

The US bank said: "SG still remains an attractive business ... however, we think an offer is unlikely to be forthcoming in the near term."

Meanwhile French police began questioning Mr Kerviel on Saturday and according to a spokesman for Société Générale, the trader took the police through the process that saw him bet €50 billion on European stock market movements, that the bank claim resulted in the €4.9billion loss.

The bank is set to raise €5.5 billion through a rights issue to help plug the losses.

Société Générale will decide tomorrow whether to bring in an external firm to conduct a detailed audit of the bank's financials.

France's finance minister said today that Mr Kerviel acted alone when he made the "unauthorised trades".

Christine Lagarde's statement supports information released by Société Générale which said that it believed that Mr Kerviel was not complicit with any other individuals at the bank when he made the unauthorised trades.

At the weekend, Jean-Pierre Mustier, the head of Société Générale's finance and investment division said: "I cannot give you 100 per cent assurances that there were no accomplices, but at this stage, there is nothing pointing to the fact that he had accomplices, either internal or external."

In a formal statement last night, the trader's lawyers, Elisabeth Meyer and Christian Charrière-Bournazel, who is the head of the Paris Bar Association, said that their client had "committed no dishonest act, did not siphon off a single cent, and did not profit in any way".

Mr Kerviel's legal team said that the bank was trying to "create a smokescreen which would divert public attention from losses that were significantly more substantial than those it accumulated in recent months".

An examining judge will notify Mr Kerviel today of likely charges and decide whether to detain him further. Charges could include fraud, false accounting, breach of trust and embezzlement. Jail terms could be eight years.

Société Générale has filed a criminal complaint, but police said that the case was so complex that they were still unclear of the nature of Mr Kerviel’s offences. Executives from the bank were called in to help police to understand how the trader masked thousands of transactions for about 13 months.

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