Heads to roll in France over trading scandal

October 19, 2008
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, PARIS, October 19 – The fate of top executives at French savings bank Caisse d\’Epargne hung in the balance Sunday over huge losses in a trading scandal that President Nicolas Sarkozy said were unacceptable.

Caisse d\’Epargne, considered one of France\’s most trustworthy banks, lost 600 million euros (800 million dollars) in high-risk derivatives trading last week at a time when European governments were scrambling to rescue banks.

A meeting of the supervisory board was called for later Sunday to decide whether bank chairman Charles Milhaud and other top executives would be asked to step down.

"Yes I do feel responsible," Milhaud told Le Journal du Dimanche newspaper. "Believe me, this incident is serious and is profoundly upsetting for me."

The scandal revived memories of the disaster at another French bank, Societe Generale, which lost 4.9 billion euros in unauthorised deals allegedly made by junior trader Jerome Kerviel.

Milhaud, 65, said he first learned of a 100-million-euro loss on derivatives last Monday and that he had asked traders to quickly unwind those deals after concluding that the bank stood to lose much more.

While the top banker acknowledged that "some rules had been violated" on the Caisse d\’Epargne\’s trading floor, he said tighter regulations were not the foolproof answer.

"You can invent the best system on Earth, boost oversight and alerts, but you are still dealing with men and this entails risks," said Milhaud.

Also facing dismissal over the fiasco were director general Nicolas Merindol, risk and finance head Julien Carmona, human resources chief Guy Cotret and development director Alain Lacroix.

Sarkozy reacted angrily to the trading losses revealed by Caisse d\’Epargne on Friday, saying it was "unacceptable" and pointed "to an absurd lack of responsibility."

The losses are "enough so that those responsible should know they will bear the consequences," he warned.

Finance Minister Christine Lagarde said she was "angry" and ordered the banking commission to conduct an immediate audit of the bank\’s trading activities.

But another official close to the bank\’s executive denounced the calls for resignations, saying: "When a teacher slaps a student, you don\’t call for the education minister\’s resignation."

Milhaud confirmed several employees would be fired including the team of traders responsible for the blunder and that the finance director had been suspended pending the result of an internal inquiry.

News of the loss came in the same week as directors of Caisse d\’Epargne approved plans to open merger talks with Banque Populaire to form France\’s second-largest retail bank.

It also came at a critical time for European banking, when governments fearing a run on the bank by nervous savers have been battling to shore up confidence.

The French government last Monday rolled out a massive 360-billion-euro bank rescue plan, offering loan guarantees and capital to avert financial collapse in the eurozone\’s second economy.

Caisse d\’Epargne has 27 million account holders in France and employs 51,500 people.

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