PARIS – French bank Societe Generale kept its embattled CEO on Wednesday and promised a thorough probe of huge trading losses it blamed on a single trader, while the country's central bank chief questioned why "malfunctions" at the company went ignored.
The board unanimously asked Chairman and CEO Daniel Bouton and his co-Chief Executive Philippe Citerne to continue in their posts, and "confirms its confidence" in them, board member Jean-Martin Folz told reporters afterward.
Folz, former CEO of PSA Peugeot Citroen, was named to head a committee that the Societe Generale board is setting up to investigate the billions in losses that the bank announced last week, stunning an already shaky banking industry.
The committee has asked auditing firm PricewaterhouseCoopers to help in the probe, the bank said in a statement. It will examine the causes and sizes of the trading losses and look into whether the bank accurately communicated information about the scandal.
The bank gave no timetable for the committee's report.
Bouton had offered to resign last week as the trading crisis unfolded and the bank said it had lost $7.09 billion in unwinding trades by 31-year-old futures trader Jerome Kerviel. The board refused his offer.
Questions have mounted about how Kerviel could have been allowed to fool his superiors, and how the bank handled the discovery of Kerviel's unauthorized transactions.
"We must focus on the reasons why the anomalies, the malfunctions, were not spotted, analyzed, or passed upward to a high-enough level, dealt with and followed up. ... That is going to be at the heart of our investigation," Bank of France chief Christian Noyer said at a hearing before the French Senate.
Kerviel told investigators that his bosses turned a blind eye to his questionable deals as long as he brought in money for the bank, according to published excerpts confirmed by the Paris prosecutor's office. The bank's lawyer said he was lying.
Noyer was questioned in the Senate along with the head of France's financial market regulator, Michel Prada.
Prada said the market watchdog left it up to Bouton to undo Kerviel's trades and that he "acted well."
He said the regulator did not authorize or intervene in the bank's decision to unwind its positions. "We simply said that we would apply the law to allow him to handle a major problem in an extraordinarily short time, three days," he said.
The board meeting was followed by a gathering of bank employees, worried about their jobs and the fate of one of Europe's most respected banks.
Several hundred bank employees defended Bouton in an impromptu demonstration Wednesday, saying his departure would only make things worse.
Amid concerns that a gem of France's banking industry is vulnerable, Prime Minister Francois Fillon has said his government will seek to block any hostile bid for the bank.
Such prospects raised eyebrows in Brussels, where the EU internal markets commissioner cautioned France to treat potential bidders for Societe Generale without regard to national interests.
"The same rules apply as in other takeover situations under free movement of capital rules. Potential bidders are to be treated in an undiscriminatory manner," Charlie McCreevy said Wednesday in a statement through his spokesman.
Analysts are also speculating about the possible dismantling of Societe Generale, with its units being divided up among other leading banks.
They say BNP Paribas — France's largest bank and Societe Generale's chief competitor — would be the most likely buyer of all or part of the struggling bank. Other names mentioned include French rival Credit Agricole SA, Britain's HSBC Holdings PLC, Germany's Deutsche Bank AG, Spain's Banco Santander Central Hispano SA and Italy's UniCredit SpA.
BNP's Chief Financial Officer Philippe Bordenave, speaking as the bank announced a drop in fourth-quarter profits for 2007 on Wednesday, refused to comment on Societe Generale's future.
Celent analyst Axel Pierron said that despite the disappointing figures, BNP's relatively limited exposure to the subprime market and its strategy of diversification were good news, and that the results could spur more speculation about BNP mulling an acquisition of SocGen.
Shares of Societe Generale were up more than 5 percent Wednesday at $121.89 in Paris. The stock, which has lost half its value since the middle of last year, has bobbed up and down since the announcement of the trading loss Jan. 24.