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Societe Generale backs its chairman

French bank Societe Generale’s board of directors decided Wednesday to keep Chairman and CEO Daniel Bouton in his post, despite mounting pressure over huge trading losses.
/ Source: news services

French bank Societe Generale’s board of directors decided Wednesday to keep Chairman and CEO Daniel Bouton in his post, despite mounting pressure over huge trading losses.

The board unanimously asked Bouton and co-chief executive officer Philippe Citerne to continue to lead the company, spokeswoman Laura Schalk said. The board also set up an independent committee to investigate the nearly 5 billion euros (more than $7 billion) in losses.

Under heavy political pressure to sack Bouton, the 15-strong board has now twice backed the CEO, who offered to resign as soon as the bank uncovered risky positions, which it disclosed last Thursday.

Politicians from President Nicolas Sarkozy down have called for sweeping changes in the wake of scandal. Support for Bouton ebbed back and forth on Tuesday when France’s finance minister first appeared to call for him to quit, then changed her mind.

Bouton, author of a blueprint on how to run a French company, has pledged the bank will bounce back from its humiliation over illicit bets worth $70 billion placed by 31-year-old trader Jerome Kerviel. But the scandal has shaken France’s image of itself as a refuge against unfettered capitalism.

Rocking the boat
SocGen shares rose 10.4 percent on Tuesday, spurred on by rumors that France’s biggest listed bank might launch a bid for the weakened SocGen. On Wednesday, the shares edged up another 0.9 percent to 79.14 euros.

The speculation left the board with a dilemma over whether to drop Bouton three years before the end of his mandate or avoid further upheaval that could deliver the bank to a predator.

“He must go, I think, but not during this difficult period which will last several weeks,” Patrick Ollier, chairman of the French National Assembly’s finance commission, said.

An employee who represents staff interests on the bank’s board said on Wednesday he would back Bouton to remain in charge. “When the boat is rocking, you don’t throw the captain overboard,” Philippe Pruvost told reporters.

What employees feared most was a takeover bid and a “loss of the bank’s identity,” he said.

Bouton has already repelled one BNP bid in 1999.

A person familiar with the matter said BNP had not ruled out a new bid for SocGen, which is worth 36 billion euros at market prices compared with BNP’s market capitalization of 60 billion.

BNP declined to comment on the bid speculation but brought forward a partial announcement of 2007 results, showing a lower but still solid 1 billion euro profit for the fourth quarter.

One scenario widely floated by bank analysts is a break-up of SocGen with its retail branches going to BNP and its investment banking arm to French bank Credit Agricole.

That could trigger a spat with unions who helped SocGen’s management scupper BNP’s 1999 takeover approach. They fear some of SocGen’s 120,000 staff could lose their jobs.

“We will oppose any dismantling or takeover attempt of Societe Generale,” said Michel Marchet from the CGT union.

Although the players are private banks, a solution which appeals to France’s hands-on politicians is seen as a must.

Ministers did not discuss a possible sale of Societe Generale at a cabinet meeting on Wednesday and any investment must be in the interest of the French sector, a spokesman said.

The government has warned off foreign or hostile predators, meaning any tie-up must be all-French and agreed by both banks.

The “ShockGen” scandal coincides with a crisis in credit markets, triggered by a meltdown in U.S. subprime mortgages. The global impact deepened when Swiss bank UBS unveiled $4 billion in new writedowns on Wednesday.

SocGen has been forced to launch a capital increase to raise 5.5 billion euros to cover the losses, as well as a 2.1 billion euro writedown resulting from the subprime crisis.

Kerviel, a 31-year old junior trader, was placed under investigation for breach of trust and other misdeeds on Monday, but judges threw out a stronger accusation of attempted fraud.

Kerviel said in transcripts of interviews with police that his activities could not have gone undetected by SocGen.

SocGen’s lawyer questioned Kerviel’s account and his credibility and insisted the trader had acted alone.