PARIS (Reuters) - French police searched the apartment of the Societe Generale dealer (SOGN.PA) blamed for running up a $7 billion loss on Friday, but his family said he was a scapegoat for the world’s worst rogue trading scandal.
Jerome Kerviel, 31, has not been seen publicly since SocGen stunned the financial world by unveiling the record trading loss on Thursday, but a photograph of his frowning face has been splashed across newspapers and television screens.
Four plainclothes police officers were seen entering the third-floor apartment in the exclusive Paris suburb of Neuilly and when they left, each carried a large briefcase. They identified themselves as police but declined further comment.
The mystery over Kerviel’s whereabouts has sparked a massive media hunt, with journalists out in force in Neuilly, his home town of Pont-l’Abbe in Brittany and near his workplace in the capital’s financial area of La Defense. A relative said he was in the Paris area and “not doing well.”
The crisis erupted on Thursday when SocGen said one of its most junior traders had wriggled through internal barriers to speculate massively on shares and then conceal his loss-making positions, which were eventually uncovered at the weekend.
It did not name the trader but his name quickly surfaced and was confirmed by sources at France’s second largest bank.
Kerviel’s family leapt to his defense.
“He is a decent boy and... is not in my view responsible for what he is accused of. He is being made to carry the blame, and he is not the guilty one. I am convinced of that,” said one family member who declined to be named.
A lawyer acting for Kerviel said he was available to talk to police, unlike trader Nick Leeson who went on the run after breaking British bank Barings with similar market bets in 1995.
Former workmates said he was an ordinary, hardworking guy.
“He was an average kind of person. When I arrived in the morning, he was there, and when I left in the evening, he was still there,” said one colleague who worked in the same section.
Colleagues said Kerviel tended to get sick at work a lot, which in retrospect they saw as symptomatic of his stress.
While the media’s focus remained on Kerviel, his bosses came under mounting pressure to give a fuller account of how just one junior employee allegedly duped them and ran up huge losses.
President Nicolas Sarkozy bemoaned a “large-scale” fraud.
A source close to the matter said France’s hands-on president was angry at being left in the dark until a day before losses were announced. He was in India when the story broke but the issue is seen likely to become more political on his return.
Prime Minister Francois Fillon openly criticized SocGen for not giving him earlier word that trouble was brewing. “Perhaps the government could have been informed earlier,” he said.
What baffles Europe’s bankers is how a man variously painted as a computer genius or junior office plodder, earning less than 100,000 euros a year, ran rings around the bank’s systems.
“They are saying all of this was cunningly concealed, but somebody must have been funding the collateral or whatever was needed to sustain those positions,” said Derek Chambers at Standard & Poor’s Equity Research.
Others questioned how other banks and market players that did business with SocGen could have been in the dark so long.
The head of Italy’s second-largest bank, Intesa Sanpaolo, said the scandal had dealt a new blow to the image of the banking industry, already reeling from the subprime crisis.
Even France’s super-rich gaped at the sums involved.
“It is incredible that one guy can run up losses of such an amount. 4.9 billion. That’s serious money,” billionaire corporate raider Vincent Bollore told reporters on a press trip.
“They must be drinking champagne at BNP Paribas now,” he said, referring to past attempts by BNP to acquire its cross-town rival. A source close to several banks said it was unlikely limping SocGen would get a hostile bid any time soon.
BNP Paribas analysts estimated SocGen’s trade exposure had been in the order of 33 billion euros. Other estimates ranged from 20 to 50 billion — staggering sums to be tossed around the global electronic marketplace by one junior speculator.
Sources close to French banks said SocGen had been nursing losses of about 1-1.2 billion euros when the trader was finally unmasked and summoned to the office to face the sack on Sunday.
The loss spiralled to 4.9 billion euros after SocGen opted to close the positions as soon as already battered markets reopened on Monday — a fateful decision that coincided with the worst one-day fall in stock markets since Sept 11, 2001.
In newspaper advertisements, SocGen Chairman Daniel Bouton, whose offer to resign was declined by the board, apologized to shareholders. Analysts wondered how long he would last.
Bank of France Governor Christian Noyer said the bank’s accounts were now clean. He hinted other French banks could announce writedowns linked to credit losses in earnings reports.
“We know exactly what the exposures are. The provisions have been announced or will be announced in the coming days, where necessary,” Noyer told RTL radio.
SocGen shares fell 2.3 percent to 73.87 euros after rising initially on renewed speculation that it could become a takeover target, or else that local institutions were discreetly buying shares to prop up market confidence, dealers said.
The shares have lost around 20 percent this year due to long-standing rumors about its exposure to credit losses.
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Writing by Tim Hepher, Andrew Hurst; Additional reporting by Marcel Michelson, Yann Le Guernigou, Elizabeth Pineau, Emmanuel Jarry, Astrid Wendlandt, Brian Rohan, Anna Willard, Reuters bureaus; Editing by Alexander Smith, Paul Bolding, Will Waterman, Michael Winfrey