Bank of France head reassures after SocGen fraud

PARIS (Reuters) - France's central bank sought to reassure depositors and investors on Thursday that a 4.9 billion euro fraud at Societe Generale was no threat to the country's second largest bank or the broader financial system.

Bank of France governor Christian Noyer said SocGen's problems were down to a single "genius of fraud" and stressed that the bank was in a solid financial position after a capital increase of 5.5 billion euros to cover the loss.

"The bank is even safer and stronger than it was before," Noyer said after a news conference. "There is absolutely no problem from the point of view of all the clients, all the counterparties and all the savers. No risk at all."

Noyer told reporters he only found out about the crisis last weekend and was then kept regularly updated.

"I was alerted as soon as SocGen had identified the problem during the course of the weekend," he said.

The International Herald Tribune last Friday reported Noyer as saying, without directly quoting him, that he had been assessing the balance sheets of banks like SocGen and BNP Paribas before they revealed their 2007 results.

Noyer's office later denied that he had referred to any specific bank in the interview and the IHT withdrew the phrase.

Asked on Thursday whether he had known about the crisis when the interview was conducted on January 17, he said: "No, absolutely not, because it was information from the weekend."

He said that in retrospect the bank had been in a "dangerous situation" on Friday, but had been "cured," he said.

He added that SocGen had provided total clarity on its credit risk exposures and had taken the decision to unwind all the fraudulent operations over the last three days despite adverse market conditions that accentuated the loss.

"On Sunday it would have been absolutely impossible to have imagined such large losses," he said.

France's CAC 40 stock index fell around 9 percent from its open on Monday until the close on Wednesday.

Noyer said there was no link between the subprime crisis and the trading loss, which was on positions taken during 2007 and this year on European equity indexes.

He said nobody could have foreseen the loss but stressed that risk controls at SocGen should have stopped the fraud.

"Today we have seen there was a glitch in the system that was exploited by someone who I think got around five successive risk control systems," he said.

Noyer said the trader, who was in his 30s, had a good knowledge of internal bank controls and was no doubt a computer "genius."

The central bank will open an inquiry into the loss, and Noyer said all necessary steps would be taken after the findings, including strengthening internal controls.

(Additional reporting by Crispian Balmer and James Mackenzie; Editing by David Cowell, Toni Reinhold)