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    Heads set to roll over trading scandal at French savings bank

    AFP
    19.10.2008 - 15:28 | Son Güncelleme: 19.10.2008 - 15:28

    The fate of the chairman and top executives at Caisse dEpargne hung in the balance Sunday after the French savings bank lost more than half a billion euros in a trading scandal.

    Considered one of Frances most trustworthy banks, Caisse dEpargne on Friday revealed the hole of 600 million euros ($800 million) from high-risk derivatives trading.

     

    French President Nicolas Sarkozy assailed the losses as "unacceptable" and the supervisory board called a meeting for later Sunday to decide whether bank chairman Charles Milhaud and other executives should step down.

     

    "Yes I do feel responsible," Milhaud told Le Journal du Dimanche newspaper ahead of the meeting.

     

    "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 unauthorized 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," 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.

     

    According to a company source, the traders did not respect limits on how much they could invest in derivatives, despite having been specifically warned about the danger presented by the volatile stock market.

     

    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.

     

    The meeting of the supervisory board was to start at 3 pm (1300 GMT).

     

    Sarkozy reacted angrily to the trading losses, saying they pointed "to an absurd lack of responsibility."

     

    The resulting hole in the banks accounts 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 banks trading activities.

     

    But another official close to the banks 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 were 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 dEpargne approved plans to open merger talks with Banque Populaire to form Frances 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 euro zone’s second economy.

     

    Caisse dEpargne has 27 million account holders -- nearly half of all savers in France --- and employs 51,500 people.

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