The latest on the Société Générale scandal

A damning indictment of risk assessment at Société Générale added to the French bank's woes yesterday as it sought to shore up its capital after losing €4.9billion (£3.7billion) in the world's biggest rogue trader scandal.

As the bank's board met to set in motion a €5.5billion capital increase and rumours of a takeover continued to swirl, a former inspector painted a highly embarrassing picture of its supposedly tight control procedures.

Maxime Legrand said that inspections were a sham carried out by junior staff lacking the clout to check on traders, who did not take them seriously and hounded them out.

His comments will be seen by the bank's critics as an explanation of how Jérôme Kerviel, the 31-year-old trader at the centre of the scandal, was able to stake €50billion on European stock markets without being found out.

“Personally, I wasn't up to detecting exactly the risks there could be,” Mr Legrand, who worked at SocGen between 2001 and 2004, said. “The inspection team didn't have enough power in this bank and we weren't given the time or the means necessary to carry out verifications.”

He backed up Mr Kerviel's claim that rules were widely flouted by traders, who escaped punishment “because they were making money for the bank”.

Managers appointed young employees straight out of college to the inspection team in the knowledge that they would flounder in the bank's trading rooms, he said. Mr Legrand said that traders “would virtually hound inspection project managers with five or six months' experience out of the trading rooms with kicks up the backside, telling them: ‘Come back when you have intelligent questions to ask me.'

“That's the whole hypocrisy of the Société Générale's management ... They pretend to have an inspection to please the banking commission.”

Mr Legrand said that the 100 or so inspectors reported directly to Daniel Bouton, the bank's chairman. “Every year he used to give us a dressing-down, saying that each time there had been a risk we had not spotted it.

“He knows he has an inspections body that doesn't see risks, and he does nothing about it.”

A spokeswoman for SocGen said that Mr Legrand's comments were “defamatory and his motives are of a personal nature”.

The bank's board met last night to launch the capital increase made necessary by Mr Kerviel's losses. Mr Bouton was questioned as a civil party, not as a suspect, by magistrates leading the inquiry into the scandal.

SocGen's shares closed up 3.22per cent at €81.75 last night after speculation that HSBC could join a takeover battle for the stricken 144-year-old institution. Analysts said that the French banks BNP Paribas and Crédit Agricole remained firm favourites since President Sarkozy was determined to keep SocGen in Gallic hands.

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