SocGen tightens controls after rogue trader case
By Yann Le Guernigou
PARIS (Reuters) - French bank Societe Generale (SOGN.PA) is tightening its controls after a rogue-trading scandal that cost it 4.9 billion euros ($7.73 billion), but its chairman said on Wednesday banks remained vulnerable to fraud.
"Fraud has existed in the banking industry since its birth. There have been several fraud cases, and there will be others," Daniel Bouton told a parliamentary committee investigating the financial crisis that has engulfed the global banking sector.
Bouton said his bank, and others, were tightening control systems to include a more cross-asset, transversal overview instead of a system of limits on individual risks or traders.
On Jan. 24, SocGen unveiled the trading losses it blamed on unauthorised stock market deals carried out by Jerome Kerviel, a junior trader at the bank.
Bouton, who was speaking in his role as chairman of the French Banking Federation, also said he saw no reason for a credit squeeze in France and noted the situation for banks in general was improving.
"I am not among the optimists about the current situation in the credit markets and liquidity, but I am among the people who believe that we have started to see the situation improving," Bouton said.
He cited the takeover of Bear Stearns by JPMorgan Chase & Co (JPM.N) and the successful capital increase of UBS (UBSN.VX) as steps that strengthened the banking sector.
Asked whether his own bank could become a takeover target, Bouton said: "Societe Generale is unique in the world in that it has withstood two takeover attempts ... There is nothing to say that there cannot be a third; it's part of the rules of the game."
WHAT IS FAIR VALUE?
He added banks should question whether and how they should mark to market assets in illiquid markets once the financial crisis was over. "One will have to seriously ask what is the fair market value," Bouton said.
He said it was not necessary yet to change valuation methods, but banks had to think about the "serious problem" of valuation of assets in illiquid markets.
BNP Paribas (BNPP.PA) froze several investment funds for a while because it was unable to price the underlying assets as there were no market prices for them.
Bouton offered to resign at SocGen in the wake of the scandal, but the board asked him to stay on, and he recently said the question of his departure was no longer on the table.
The bank has said Kerviel managed to bypass control systems to build up a position worth around 50 billion euros, which SocGen then had to unwind into an already falling stock market.
Kerviel last month emerged from a spell in prison determined not to become the fall guy over a trading scandal at the French bank, his lawyer Guillaume Selnet told Reuters on March 20.
SocGen has carried out an internal investigation into the Kerviel affair. Its internal report, published on Feb. 20, supported the bank's previously expressed view that Kerviel acted alone.
(Additional reporting by Astrid Wendlandt and Marcel Michelson; editing by Sue Thomas/Will Waterman)
