Société Générale has confirmed a record fourth-quarter loss after absorbing the world's biggest rogue trading scandal which has made France's second-biggest listed bank a potential takeover target.
The €3.35 billion quarterly loss follows trading losses which SocGen disclosed last month and coincides with an internal report acknowledging for the first time that better systems might have prevented the costly stock market gambles of trader Jerome Kerviel.
However, the bank said its net profits for the full year came to €947m, despite the trading scandal. Net profits fell 82% compared with 2006, when the figure stood at €5.221 billion.
The bank warned it may make further writedowns in the future.
Executive Chairman Daniel Bouton said that the 144-year-old bank was determined to ride out the storm as an independent bank, despite reports of a potential bid from long-time suitor and arch-rival BNP Paribas.
'I am completely determined to continue with our strategy because, even taking into account our very bad year in 2007 due to the financial crisis and this fraud, it's this strategy which creates and will create the most value for shareholders,' Bouton told Reuters in an interview.
SocGen's fourth-quarter net loss compares with a €1.18 billion profit a year earlier and a fourth quarter profit of €1 billion unveiled by rival BNP yesterday.
On January 24, SocGen announced €4.9 billion of trading losses which it blamed on 31-year-old Kerviel, who is now in detention pending an investigation into falsification, computer abuse and breach of trust. Fraud accusations were dropped.
To plug the losses and pay for a €2 billion writedown linked to the sub-prime crisis, SocGen has drawn up a €5.5 billion rights issue and the shares went on sale at a steep discount to existing shareholders today. SocGen said it would continue with a share buyback programme to counter the dilutive effects of the rights issue.
SocGen's board has so far stood by Bouton, resisting political pressure on him to step down over the scandal which has shaken France's political and financial establishment. Bouton offered to resign but was asked to stay on.
In a move seen by financial commentators as trimming Bouton's powers, however, the board assigned the task of investigating the losses to a panel of independent board members under former car company boss Jean-Martin Folz.
The Folz report, issued on the eve of today's results, said the bank's failure to spot Kerviel's activities stemmed in part from the 'absence of certain controls which had not been anticipated and which could have identified the fraud'.
However, the report supported SocGen's previously expressed view that Kerviel acted alone. 'At this stage of the investigations, there is no evidence of embezzlement or (an) internal or external accomplice,' the report said.
But in other news today, French judges spent three hours questioning a second trader in connection with the scandal. The trader, who worked for SocGen's subsidiary Fimat, has been named as an assisted witness in the case involving falsifying documents.
Two judges questioned him on his relationship with Kerviel, focusing on an exchange of instant messages between the traders. Some 1,600 pages of instant messaging texts sent from September 2007 to January 2008 have been seized.
While he has insisted he acted alone, Kerviel has suggested that his bosses knew that he was dealing with huge sums of money and that they turned a blind eye as long as he was not in the red.
The head of the Bank of France has said SocGen lacked adequate risk control resources, particularly human ones.
