Kerviel trial returns to haunt Societe Generale

By Lionel Laurent

PARIS (BestGrowthStock) – The trial of alleged rogue trader Jerome Kerviel, due to begin next week, will dredge up uncomfortable memories for former employer Societe Generale as the French bank tries to focus on its new strategy.

The 33-year-old Kerviel became a world-famous face of the financial crisis when Societe Generale blamed him for 4.9 billion euros ($6.03 billion) of losses in early 2008. He will battle charges of breach of trust, computer abuse and forgery.

He risks five years in jail and a 375,000 euro fine if found guilty by judges at the trial, which features a confrontation between two of Paris’s best-known lawyers — Olivier Metzner and Jean Veil.

Kerviel has used a string of media appearances over the past month to launch fresh broadsides at Societe Generale, which he insists tolerated his actions as he hid unauthorized trading positions reaching an estimated 50 billion euros.

“I won’t stop telling people that my superiors knew what I was doing,” the former trader told Reuters in May.

SocGen is determined to see Kerviel sentenced and has pointed out that investigating magistrates have already dismissed his claims of tacit complicity from his bosses.

The French bank, which was forced to raise billions in capital after the losses were revealed, has overhauled management and tightened risk controls since 2008.

Analysts say its brand and reputation suffered in the wake of the scandal, allowing BNP Paribas to gain the advantage with domestic retail customers while at the same time forcing SocGen to cut down on proprietary trading activities.

The losses caused by the Kerviel debacle also reignited long-standing speculation that SocGen could fall to a takeover bid.

BNP Paribas, which narrowly failed to buy SocGen in 1999, briefly expressed an interest in SocGen in the aftermath of the scandal. Analysts say SocGen could also be carved up between BNP and domestic rival Credit Agricole.


GSD Gestion fund manager Christophe Gautier said the trial was unlikely to have much of an impact on SocGen’s shares, with investors focusing more on concerns over the banking sector’s exposure to the euro zone debt crisis in places such as Greece.

“Investors won’t be that bothered by it, the trial will be very much in the domain of tabloid gossip,” said Gautier.

SocGen’s new chairman, Frederic Oudea, spent much of 2009 trying to restore internal morale, particularly in retail branches, following the Kerviel fallout and rising pressure from political scrutiny.

Oudea took charge of SocGen after previous incumbent Daniel Bouton eventually felt obliged to step down following a barrage of criticism from public figures such as French President Nicolas Sarkozy over Bouton’s handling of the Kerviel affair.

Oudea has tried to sound confident for 2010, calling it a “rebound year” for the bank even as fears over European macroeconomic growth have knocked some 30 percent off SocGen’s share price do far this year.

With a crucial investor day due on June 15 — which will coincide with trial proceedings for Kerviel — SocGen is preparing to unveil its future strategy.

The bank will hope that no unwanted surprises will emerge at the trial to spoil its attempt to wipe the slate clean.

Investment Research

(Additional reporting by Sudip Kar-Gupta, editing by Marcel Michelson and Michael Shields)

Kerviel trial returns to haunt Societe Generale