Societe Generale missed 75 warning signs on the activities of rogue trader Jerome Kerviel, an independent report has found, as France's second-largest bank posted a 82 per cent fall in last year's profit.

A preliminary report by a three-personal panel appointed in the wake of the scandal found that there were 75 alerts between June 2006 and the beginning of this year that should have alerted Mr Kerviel's managers to his unauthorised trading. The 31-year-old Frenchman sent the bank to a €4.9 billion trading loss after running up bets worth €50 billion on the future direction of various European indices.

Risk control procedures were followed correctly, the report said, but compliance officers rarely went beyond routine checks and did not inform managers of anomolies, even when large sums were concerned. Nor were follow-up checks made on cancelled or modified transations.

"No inititiative was taken to check JK's assertions and corrections he suggested, even when they lacked plausibility," the report said. "When the hierachy was alerted, it didn't react."

Rogue traders' profit boosted SocGen bonuses

Jerome Kerviel's lawyer claims executives at the French bank benefited from the successful investments of the rogue trader

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Multimedia

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Background

• Who Knew What and When?

• SocGen director probed over €100m share sale

• Ex-SocGen risk auditor calls systems a sham

Related Links

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• Rogue traders' profit boosted SocGen bonuses

The panel supported Mr Kerviel's claim that he acted alone and that he did not profit personally from the trades. There has been speculation that the trader had been disappointed by an earlier bonus and had hoped that his ambitious bets would win him favour with his bosses.

The report said that Mr Kerviel got a €60,000 bonus for 2006 and had asked for a €600,000 bonus for 2007 but received half that amount.

"At this stage of the investgiations, there is no evidence of embezzlement or internal or external complicity," the report said.

The investigation found that Mr Kerviel has started building up non-authorised trading positions in 2005 and 2006 for small amounts but the positions he took grew in size from March 2007 onwards.

According to Mr Kerviel, by Christmas he was in profit by €1.4 billion but his activities were discovered on January 8, fully identified by January 18, and SocGen was forced to secretly unwind the positions between January 21 and 23 in falling markets, taking it to a €4.9 billion loss.

The red flags that should have alerted bosses to the rogue trades included:

• A trade with a maturity date that fell on a Saturday
• Bets without identified counterparties
• Trades with counterparties within SocGen itself
• Trades that exceeded the limits of counterparties
• Missing broker names and large increases in broker fees.

There were also differences of up to €1.1 billion during reconciliations of Mr Kerviel's trading books with SocGen's online derivatives broker. The panel found seven false emails sent by Mr Kerviel that attempted to explain his trading and counterparies.

Mr Kerviel has been placed under formal investigation and is currently being held in a Paris prison. He is being investigated over computer hacking, falsifying documents and breach of trust but not fraud, despite SocGen describing his activities as fraudulent when it first revealed the biggest rogue trading scandal in banking history.

The trader has claimed that he believed that his bosses were aware of his activities. The panel's report, released last night, continued, however, to describe Mr Kerviel's trades as fraud.

The panel, which is due to report to SocGen shareholders on May 27, gave warning that it might uncover further small unauthorised activities. SocGen has already started shoring up its risk controls.

The bank this morning reported a net profit of €947 million last year, down from €5.2 billion in 2006. It unveiled a record fourth-quarter net loss of €3.3 billion, in line with its earlier forecast.

This is down from a €1.1 billion profit in the same three months of 2006. The 2007 dividend fell to €0.90, down from €5.20 per share. SocGen's corporate and investment banking business had €2.6 billion worth of writedowns and losses on its investments in US subprime mortgage-related assets, in line with an earlier estimate supplied by the company.

Rival French banks BNP Paribas and Credit Agricole are considering making a bid for the troubled bank but Daniel Bouton, the chief executive and chairman of the bank, said that he would push ahead with SocGen's standalone strategy.

The bank's board rejected his offer to resign in the wake of the scandal.

Mr Bouton said this morning: “I am completely determined to continue with our strategy because, even taking into account our very bad year in 2007 due to the financial crisis and this fraud, it’s this strategy which creates and will create the most value for shareholders".

The bank is currently raising €5.5 billion in a fully-underwritten rights issue designed to recapitalise the bank after the trading loss.

SocGen's independent investigation in being lead by Jean-Martin Folz, the former chief executive of Peugeot Citroen, assisted by Jean Azema, the chief executive of Groupama, the insurer, and Antoine Jeancourt-Galignani, chairman of the real estate company Gecina. PricewaterhouseCoopers, the accountancy firm, has been retained as an adviser to the investigators.

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