Societe Generale (SocGen), hit by massive losses it blamed on rogue trades, braced for fresh criticism on Tuesday after a government report highlighted major failings in its risk controls.
Bank of France governor Christian Noyer, who last week said he warned SocGen less than a year ago to improve its market control systems, prepared to address parliament on the trading scandal that has humbled the French bank.
On January 24, SocGen unveiled 4.9 billion euros of losses which it said were caused by deals executed by Jerome Kerviel, a 31-year old junior trader at. Kerviel was questioned again for eight hours on Monday, a judicial source told Reuters, and faces possible criminal charges.
French Economy Minister Christine Lagarde said on Monday the trading debacle highlighted major failings in SocGen’s systems. She said France would seek stricter risk controls for financial institutions and impose far tougher penalties on banks that failed to police them effectively.
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BID TALK LINGERS
SocGen shares were down 1.3 percent at 82.50 euros in mid-morning trade, giving it a stock market value of around 38 billion euros.
As a result of the trading losses, the bank plans a 5.5 billion euro capital increase that has been fully underwritten by JP Morgan and Morgan Stanley. Analysts expect SocGen to detail a rights issue later this week.
The trading losses, which will cause a slump in SocGen’s annual profits, have turned SocGen into a likely takeover target.
U.S. investment bank Merrill Lynch said in a research report on Tuesday that it saw a 70 percent chance of a takeover of SocGen. Merrill raised its price target on SocGen to 116 euros from 90 euros and reiterated a “buy” rating on SocGen shares.
The Merrill Lynch research report also said a takeover of SocGen could come in the form of a break-up consortium, involving French banks BNP Paribas and Credit Agricole with
BNP Paribas narrowly failed to buy SocGen in 1999.
France’s top politicians have repeatedly expressed their determination to ensure that SocGen avoids falling prey to a hostile takeover bid by a foreign bank. (Reuters)
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