SocGen loss shocks Gallic pride

By Marcel Michelson

PARIS (Reuters) - The $7 billion equities derivatives loss at award-winning bank Societe Generale has dealt a sharp blow to French pride, not least because of the international reputation in financial markets of its mathematically-trained technical traders.

It will also leave a bitter taste with President Nicolas Sarkozy who cherishes the idea of having French national champions leading Europe and the rest of the world in sensitive economic areas such as finance, aerospace, energy and technology.

Sarkozy, on an official visit to India, said on Friday that the trading loss was a "large scale internal fraud" but did not call into question the solidity of France's financial system.

"It is clear that this does not improve the image of France, which is known as one of the countries that is best in its education in technical finance," said Michel Baroni, professor of financial techniques at the ESSEC business school.

"But one should not draw general conclusions too soon -- that there was one person who got his positions wrong does not affect the thousands of other people working in the sector to complete good effect," he added.

"We do not know the precise details but it looks like we have to separate what was due to technical errors and what went amiss with the checks and balances at the bank," Baroni said.

France, the country of Blaise Pascal and Rene Descartes, prides itself on its rigorous mathematical tradition and the City of London financial centre has long been snapping up promising young mathematicians from over the Channel.

But now the Societe Generale loss, coming after a 250-million-euro trading loss at Credit Agricole unit Calyon last year, hits the French banks in an area which they saw as their specialty.

"The stars of finance must be very cross that a simple base trader has succeeded in sinking a bank," Liberation newspaper wrote on Friday. It added: "The fraud is terrible for the credibility of the bank in the equities derivatives sector, a business in which Societe Generale had become a global leader."

The deputy chief executive of HSBC France, Gilles Denoyel, recently told The Banker magazine that Paris was a world leader in equity derivatives with 25 percent of the European market and that was why HSBC chose Paris, with its "internationally-renowned school of mathematics and finance" to develop its own derivatives activities.

In fact there are several schools. They include the Ecole Centrale Paris, ESSEC Business School, University of Paris X-Nanterre, University of Paris-Dauphine and the ENSEA Graduate School of Economics, Statistics and Finance.

The trader blamed for SocGen's big loss was a graduate of universities in Nantes and Lyon, with a master's degree in finance, and had moved from the back office of the bank to become an apprentice trader in the dealing room.

"There are many Chinese walls in a big bank and often the back office people know nothing about what is happening in the front office and vice versa," ESSEC's Baroni said.

(Editing by Greg Mahlich)