Société Générale reported a record fourth-quarter net loss of €3.3 billion (£2.5 billion) yesterday in the wake of the rogue trader scandal and net profit of €947 million last year, down from €5.2 billion in 2006 — a fall of 82 per cent.

The figure was down from a €1.18 billion profit in the same three months of 2006. The 2007 dividend fell to €0.90, down from €5.20 a share. SocGen's corporate and investment banking business had €2.6 billion of writedowns and losses on its investments in US sub-prime mortgage-related assets, in line with its earlier estimate.

A preliminary report by a three-member panel appointed in the wake of the scandal found that the bank missed 75 warning signs between June 2006 and the start of this year that should have alerted managers of the jailed trader Jérôme Kerviel to his unauthorised actions. The 31-year-old Frenchman sent the bank to a €4.9 billion trading loss after running up bets worth €50 billion on the future direction of various European indices.

Risk control procedures were followed correctly, the report said, but compliance officers rarely went beyond routine checks and did not inform managers of anomalies, even when large sums were concerned.

Rogue traders' profit boosted SocGen bonuses

Jerome Kerviel's lawyer claims executives at the French bank benefited from the successful investments of the rogue trader

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Multimedia

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BACKGROUND

• Who Knew What and When?

• SocGen director probed over €100m share sale

• Ex-SocGen risk auditor calls systems a sham

Related Links

• Alerts over rogue trader ‘not followed up’

• Rogue traders' profit boosted SocGen bonuses

Nor were follow-up checks made on cancelled, or modified, transactions.

“No initiative was taken to check JK's assertions and corrections he suggested, even when they lacked plausibility,” the report said. “When the hierarchy was alerted, it didn't react.”

The panel supported Mr Kerviel's claim that he acted alone and that he did not profit personally from the trades. There has been speculation that the trader had been disappointed by an earlier bonus and had hoped that his ambitious bets would win him favour with his bosses.

The report said that Mr Kerviel got a €60,000 bonus for 2006 and had asked for a €600,000 bonus for 2007, but received half that. “At this stage of the investigations, there is no evidence of embezzlement or internal or external complicity,” the report said.

SocGen's independent investigation is being led by Jean-Martin Folz, the former chief executive of Peugeot Citroën, assisted by Jean Azema, the chief executive of Groupama, the insurer, and Antoine Jeancourt-Galignani, chairman of the real estate company Gecina. PricewaterhouseCoopers, the accountancy firm, has been retained as an adviser to the investigators. They found that Mr Kerviel had started building up non-authorised trading positions in 2005 and 2006 for small amounts, but the positions he took increased from March 2007.

According to Mr Kerviel, by Christmas he was in profit by €1.4 billion, but his activities were discovered on January 8 and fully identified by January 18. SocGen was forced to secretly unwind the positions between January 21 and 23 in falling markets, taking it to a €4.9 billion loss. The red flags that should have alerted bosses included a trade with a maturity date that fell on a Saturday; bets without identified counterparties; trades with counterparties within SocGen itself; trades that exceeded the limits of counterparties; and missing broker names and large increases in broker fees.

Mr Kerviel has been placed under formal investigation and is being held in a Paris prison. He is being investigated over computer hacking, falsifying documents and breach of trust, but not fraud, despite SocGen describing his activities as fraudulent when it first revealed the biggest rogue-trading scandal in banking history.

The trader has claimed that he believed that his bosses were aware of his activities. However, the panel's report continued to describe Mr Kerviel's trades as fraud.

The panel, which is scheduled to report to SocGen shareholders on May 27, gave warning that it might uncover further small unauthorised activities. The rival French banks BNP Paribas and Crédit Agricole are considering making a bid for the troubled bank, but Daniel Bouton, the chief executive and chairman of the bank, said that he would push ahead with SocGen's stand-alone strategy.

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