A new court battle will be held today over the detention of French rogue trader Jerome Kerviel, while Societe Generale (SocGen) is to soon launch an US$8 billion capital increase to cover the losses they blame on him.
The decision by a Paris appeals court on Friday to back a prosecution demand that the 31-year-old trader be held in custody was the latest twist in the worst investment banking scandal in history.
His lawyer, Elisabeth Meyer, said she would go to a higher appeals court today.
The prosecution said Kerviel could influence any accomplice or witness and at the same time as the hearing was held, police questioned a broker at a Societe Generale subsidiary through which Kerviel handled many of his tens of billions of dollars in European share trades.
The broker was released on Saturday but remains an assisted witness, meaning he could still face charges.
SocGen has blamed Kerviel for 4.82 billion euros (US$7.1 billion) of losses from unauthorized trades worth at least 50 billion euros. He faces charges of breach of trust, fabricating documents and illegally accessing computers.
France's Financial Markets Authority was to meet on Friday to review SocGen's planned 5.5 billion euro capital increase to cover the loss and some of the 2 billion euros lost on the US subprime loan market.
If it approves, SocGen chairman Daniel Bouton could launch the capital increase in coming days.
The bank has been shaken to the core since suspicions about Kerviel's trades were first raised on Friday, Jan. 18. Before the weekend was over, the bank was in "potentially mortal" danger and the Bank of France had agreed a secret resuscitation plan.
According to official statements and SocGen's own account, the bank questioned Kerviel on Saturday. Early on Sunday afternoon, the bank had enough information to estimate the damage: The 50 billion euros in market exposure far exceeded its shareholder funds.
Bouton informed Bank of France Governor Christian Noyer, who authorized him to unwind the contracts. This began on the Monday when stock markets were falling heavily, adding to its exposure.
Amid global market turmoil, the US Federal Reserves cut interest rates sharply on the Tuesday.
By Wednesday, Jan. 23, SocGen has closed the positions. Noyer informed the French government, which was infuriated at not being told earlier, the European Central Bank and the New York Federal Reserve of the crisis.
Early on Thursday, SocGen revealed that a lone trader had lost it 4.8 billion euros, wiping out most of its profit for last year. It also disclosed 2 billion euros in losses on subprime loans in the US and said it had investment bank guarantees for new capital of 5.5 billion euros.
A storm broke on many fronts, with talk of a takeover, that has only been eased by the capital increase plan.
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