By Stephanie Bodoni and Helene Fouquet
Jan. 25 (Bloomberg) — French Prime Minister Francois Fillon chided Bank of France Governor Christian Noyer for failing to inform him sooner that Societe Generale SA had suffered a record trading loss.
“It’s an affair of such an importance for the French financial system, that maybe the government could have been informed earlier,” Fillon told reporters in Luxembourg today.
He said he learned of the 4.9 billion-euro ($7.2 billion) loss on Jan. 23, the day before it was made public and at least three days after Noyer was told by the bank’s chairman.
Fillon’s comments may signal the beginning of official finger-pointing. Fillon ordered Finance Minister Christine Lagarde to complete an investigation in eight days. Noyer was will testify in a Senate hearing Jan. 30 and will be called to appear in the lower house of parliament in the coming weeks, said the head of its Finance Committee, Didier Migaud.
“France is known for being an interventionist state, which it is, and at the same time a country where the prime minister is not informed or aware and is even seemingly the last to know,” Dominique Reynie, a senior researcher at the Institute of Political Studies in Paris said in a telephone interview. “It’s bad for the economy. Confidence will fall while skepticism toward the government will increase,” he said.
`Real Time’
Societe Generale, France’s second-biggest bank by market value, said yesterday that unauthorized bets on stock-index futures by a single trader caused the loss, the largest in banking history. Noyer said he was told during the weekend that began Jan. 19, and was kept informed in “real time.”
“Is it abnormal that the French government was informed four days after this affair was discovered?” Fillon said. “It’s a private bank. It isn’t obliged to do so.”
“All necessary contacts were made in due course,” Noyer said at a briefing yesterday. After informing Noyer, Societe Generale liquidated the positions starting on Jan. 21.
The day that Societe Generale began unwinding the trades linked to European stock-index futures, equity markets in France, Germany and the U.K. fell more than 5 percent. The next day the U.S. Federal Reserve announced a decision to cut interest rates as “financial market conditions continued to deteriorate.”
Fed policy makers didn’t know about the losses at Societe General prior to the rate reduction, a Fed official said yesterday. ECB President Jean-Claude Trichet told LCI television in an interview today that the Bank of France said “what had to be said” within the European system.
Central Banks’ Role
“These things really have to be communicated among European supervisory authorities as soon as possible,” said Karel Lannoo, chief executive officer of the Centre for European Policy Studies in Brussels. “Central banks are at the center.”
Societe Generale and Noyer guarded the information as closely as possible to prevent leaks that could have ruined the bank, said Elie Cohen, a Societe Generale director and economist at France’s National Center for Scientific Research in Paris.
“This was the highest crisis situation,” Cohen said in an interview. “So thinking about calling the Prime Minister? No. Sorry if he gets annoyed. They had to call the bank regulator.”
With positions that surpassed the bank’s market value of about 40 billion euros, “if a hedge fund found out about it, the bank was dead,” he said. “In an ideal world, the government could be informed of such a crisis, but because of today’s world and markets, you just take the best and most efficient measures.”
Societe Generale Chairman Daniel Bouton apologized to shareholders and clients in a letter posted on the company’s Web site today and published in major newspapers, saying the trading loss was “perfectly unacceptable.” The letter insisted the Paris-based company remains solid.
The bank took the right steps in responding to rogue trading, European Union Financial Services Commissioner Charlie McCreevy said today in a Bloomberg Television interview at the World Economic Forum in Davos.
To contact the reporter on this story: Stephanie Bodoni in Luxembourg at sbodoni@bloomberg.net ; Helene Fouquet in Paris hfouquet1@bloomberg.net
