Bouton defends SocGen conduct

PARIS — Societe Generale SA chiefs faced boos and jeers at a shareholders meeting Tuesday while defending the French bank's response to one of the world's largest trading scandals, which caused a massive loss.

Chairman Daniel Bouton insisted the alleged fraud that the bank has blamed on former trader Jerome Kerviel was an "isolated" event — and does not reflect the heart of the bank's trading activities.

"All the investigations have shown that the positions of the trader from which the losses stem were concealed," he told about 1,500 shareholders at the annual meeting near the bank's headquarters in Paris' business district.

"Our control systems didn't allow us to detect his techniques of concealment before January," he added, referring to the month when the scandal broke.

In two long-awaited reports released last week, investigators said management failures and a culture of risk-taking were partly to blame for the failure to spot Kerviel's positions, which led to a loss of almost 5 billion euros (more than $7 billion) once they were unwound.

The reports detailed a scandal that has sullied the reputation of the glamorous trading desk at the award-winning bank. They said Kerviel's bosses missed more than 1,000 faked trades, a huge jump in his earnings in 2007; questions about his trades from the Eurex exchange; unusually high levels of cash flow, accounting anomalies, and high brokerage expenses; Kerviel's failure to take vacation; and his breach of the desk's market risk limit on one position.

"Who do you take us for?" asked one angry shareholder, who was not introduced by name. "You were warned several times. You would have been able to stop him if you had wanted to or if you had the right controls."

Another shareholder called for Bouton to resign. Yet another said he had read the investigative reports with disbelief, and called them "damning."

Seven SocGen employees have left as a result of the affair, Bouton said. Five were fired, and the head of derivatives and the head of trading resigned, he said.

Societe Generale shares have lost 10.2 percent since Jan. 23 — the day before SocGen revealed the alleged fraud.

Bouton said the decline was also linked to the crisis in financial markets that has hit financial stocks around the world. The shares fell 0.37 percent to close at 66.45 euros ($104.73) in Paris trading on Tuesday.

Bouton stepped down as CEO earlier this month, handing over the daily running of the bank to Frederic Oudea. The change at the top came after the successful completion of a 5.5 billion euros ($8.73 billion) capital hike.

Oudea, the former finance chief, backed Bouton's version of what he called a "totally exceptional" event.

Kerviel's lawyer, Guillaume Selnet, said the trader's bosses had known what he was up to, but chose to look the other way while he was making money for the bank.

"It's more than negligence," he said in an interview with The Associated Press. "This is a business model that is at stake."

Undetected by multilayered security systems at the bank, Kerviel, a 31-year old junior trader, had for over two years been fraudulently using company funds to bet on European stock markets.

It took three days for the bank — France's second-largest — to unload his positions just as stock exchanges were plunging amid some of the blackest days in the market since the Sept. 11 terrorist attacks.

Kerviel was involved in what the bank calls "plain vanilla," or the more basic forms of hedging, with limited authority. He took home a salary and bonus of less than 100,000 euros, or about $155,700 — relatively modest in the financial world.

The case is also being investigated by France's market authority, the country's banking commission and a French court.

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