SocGen trader cooperating with French police

By James Mackenzie and Andrew Hurst

PARIS (Reuters) - A junior trader blamed for causing a $7 billion loss at French bank Societe Generale has handed himself into the police and is cooperating with their investigation, a prosecution official said on Saturday.

Jerome Kerviel, 31, turned up at the headquarters of the finance police in southeast Paris during the afternoon and is likely to be held for up to 48 hours before prosecutors decide whether to launch legal proceedings against him.

"All is going well. He is co-operating and is ready to explain what happened," Jean Michel Aldebert, the head of the financial section of the Paris prosecutors office, told reporters late Saturday.

SocGen has accused its trader of taking "massive fraudulent" positions in 2007 and 2008 on European equity market indices, which left them nursing massive losses as they unwound the positions in plunging markets at the start of last week.

On Friday, police visited the gleaming Societe Generale offices where Kerviel used to work, poring over his computer records, and also searched the apartment where he lived on the western outskirts of Paris.

Kerviel's family say he is being made a scapegoat for the world's worst rogue trading scandal.

Authorities are putting pressure on SocGen's managers to explain how a bank that won accolades for innovation and boasted state-of-the-art risk controls could have been tripped up by a junior trader acting alone.

The scandal at SocGen struck at the height of a global credit crisis, set off by a meltdown in U.S. subprime mortgages, which has forced banks around the world to take tens of billions of dollars in charges as the value of their exposures crumbled.

SARKOZY DEMANDS REFORM

French President Nicolas Sarkozy demanded changes to the running of international financial markets in the wake of the fraud scandal at Societe Generale, saying it was time to restore a sense of proportion.

"We have to put a stop to this financial system which is out of its mind and which has lost sight of its purpose," Sarkozy said on Saturday while on a visit to India.

"If one can make profits in a few hours, one can also make gigantic losses in a few hours as well. And it is time to realize that (we need) to insert a bit of wisdom into all these systems."

When it announced the fraud, SocGen also unveiled a writedown of 2.05 billion euros on subprime-related exposures. Until then, SocGen had not taken any significant charges despite constant market rumors it faced substantial liabilities.

The fraud scandal struck a heavy blow to SocGen's investment banking business, which acquired an international reputation for sophisticated financial engineering.

A picture of how Kerviel was able to hide his massive trades has been gradually taking shape as his managers speak to the media about the affair.