Corporate confusion, inexperienced managers and a slipshod approach to risk management plunged Société Générale into the biggest rogue trader scandal to date, according to two internal reports published last night.

The reports offered a damning insight into the French bank’s failure to prevent Jérôme Kerviel, a junior trader, from running up losses of €4.82 billion (£3.84 billion).

They paint a picture of an institution that left itself exposed to fraud as it expanded its investment division but ignored the accompanying dangers.

The inquiries will provide ammunition for Mr Kerviel’s legal representatives, who say that SocGen was partly responsible for the fiasco, and also for US lawyers planning a class action against the bank.

However, Mr Kerviel’s detractors will seize on a finding by internal auditors that he used his unauthorised dealings to “significantly increase” his bonus. They say his official earnings were boosted by the profits he made from unofficial deals.

The reports – one by 40 internal auditors, the second by PricewaterhouseCoopers – were commissioned by a committee chaired by Jean-Martin Folz, former head of Peugeot.

In a synthesis, the committee detailed the devices used by Mr Kerviel, 31, to hide unauthorised positions totalling €50 billion. It said that there was evidence he had colluded with his assistant, but went on to say: “The fraud was facilitated or its detection delayed by weaknesses in the supervision of the trader and in controls over market activities.”

The inexperience of the manager of the Delta One derivatives desk was a key factor in the breakdown, but it was the entire culture of the investment banking division that lay behind these failings.

PwC denounced shortcomings in the design of fraud detection procedures that failed to keep pace with the rapid expansion of trading activities. “The combination of these weaknesses allowed the trader to conceal his positions,” it said.

Managers pointed out the difficulties to their superiors but no action was taken to rectify the difficulties.

“Our numerous interviews also reveal that the trading hierarchy lost sight of the scale of the orders and lacked knowledge of the details of the activities carried out by the traders,” said the internal auditors’ report.

Jean-Pierre Mustier, the head of the investment banking division, could face further pressure to step down. However, there was comfort for the bank with an assertion that executives had taken steps to prevent a repeat of Mr Kerviel’s dealings. SocGen has said it plans to invest €100 million to upgrade its control systems.

Mr Kerviel denies committing any offences under French law. He says his superiors knew of his bets on the European futures market and turned a blind eye as long as he was successful.

The internal reports were due to be sent last night to Renaud Van Ruymbeke and Françoise Desset, the magistrates in charge of the inquiry.

A London trader at Merrill Lynch has been suspended after the firm found he may have overstated the value of equity derivatives he was trading on the bank’s own account. It is believed that the value of holdings may have been inflated by up to £10 million during April. The anomalies were discovered this month but the trader has not yet been named.

Merrill has notified the Financial Services Authority about the situation.

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