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Société Générale came under fire yesterday after
"Certain internal control mechanisms at Société Générale did not work," said Christine Lagarde, after delivering a report to the French government. "Those that did were not always followed up with the appropriate changes."
SocGen, in a terse statement, replied: "The report does not call into question the systems used to manage market risk. The measures which would have enabled [the alleged fraud's] detection and prevention have been implemented or will be put into place shortly."
It blames junior trader Jérôme Kerviel, 31, for a £3.7bn loss, though he has reportedly claimed his superiors ignored his deals while they were profitable.
The report also said that Bank of France's banking commission had already signalled weaknesses in SocGen's control system in 2006/7. It called for a sharper split between the roles of government and regulators, and recommended "significantly" increasing banking commission penalties for breaching security rules.
However, Mrs Lagarde said the bank did not break disclosure rules on market information when it unwound Mr Kerviel's secret bets. These were not responsible for sharp falls in European stock indexes in January, she said.
The report did not seek to attribute blame as a criminal investigation is under way. Mr Kerviel is being investigated for breach of trust, forgery and computer hacking.
SocGen says he had an unauthorised position, or a bet, worth about £37bn on the future direction of European shares. When the bank found out, it unwound Mr Kerviel's trades, at a massive loss.
New details emerged yesterday of the panic at the bank following the discovery of Mr Kerviel's bets on January 18. A trader told Le Monde how he phoned Mr Kerviel to question him about €30bn worth of seemingly fictitous bets.
Kerviel allegedly owned up by saying: "It's true, it's fictitious. But I invented this operation to cover the €1.4bn profit I made in 2007. I wanted to surprise you. I found a winning formula on the [German] Dax futures contract.”
By Henry Samuel in