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France tries to calm SocGen jitters

President Nicolas Sarkozy calls it a “large scale internal fraud” and said it did not call into question the solidity of France's financial system.

business Updated: Jan 25, 2008 23:29 IST

Amazement at huge trading losses at Societe Generale gave way to tough questions about controls in Europe's leading banks on Friday as France sought to limit the damage from the world's worst rogue trading scandal.

Commenting for the first time on the bank's $7 billion loss, President Nicolas Sarkozy called it a “large scale internal fraud” and said it did not call into question the solidity of France's financial system.

Echoing reassurances from both government and central bank when the scandal broke on Thursday, Sarkozy said the losses "do not affect the solidity and reliability of the French system". Bank of France Governor Christian Noyer weighed in for the second time since the crisis broke on Thursday by saying Societe Generale's accounts were now clean after it unwound positions built up by the lone trader, who has still not been seen.

Noyer dismissed speculation that some of the losses pinned on the employee, named as Jerome Kerviel, were due to the ongoing global credit crisis.

But he hinted that other French banks could announce write-downs linked to credit losses when they report earnings. “We know exactly what the exposures are. The provisions have been announced or will be announced in the coming days, where necessary.”

SocGen shares rose 2 per cent to 77.34 euros by mid-session, valuing the bank at around 35 billion euros. They outpaced a firmer market after falling 4 per cent on Thursday. Several analysts cut their recommendations for the bank.

But the bank is also under pressure to explain how a man variously painted as a genius or junior office plodder, earning less than 100,000 euros a year, ran rings around the bank's sophisticated anti-fraud systems from a desk at headquarters.

Even France's super-rich gaped at the sums involved. Referring to past attempts by BNP to acquire its cross-town rival, billionaire Vincent Bollore said: “They must be drinking champagne at BNP Paribas now.”