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SocGen pins loss in fourth quarter on trading scandal

Troubled French bank Societe Generale SA said on Thursday that a trading scandal and write-downs linked to the crisis in financial markets led to a net loss in the fourth quarter last year.

France's second-largest bank said it lost 3.35 billion euros (US$4.91 billion), compared with a 1.18 billion euro net profit in the same period of 2006.

The French bank took a 4.9 billion euro hit in closing the unauthorized positions of futures trader Jerome Kerviel, who is currently being held in a Paris prison. Kerviel was questioned for a third time on Thursday by investigators.

Though it discovered the positions on Jan. 18, the losses that resulted were booked in the fourth quarter.

Shares rose 0.3 percent to 66.81 euros in Paris morning trading. The stock has lost roughly half of its value this year.

Societe Generale is seeking 5.5 billion euros in new capital to shore up its finances after the trading loss and 2.6 billion euros in previously announced write-downs linked to the US mortgage crisis.

The Paris-based bank had already announced preliminary results on Feb. 11 in a prospectus for investors taking part in a capital increase, the subscription period for which starts on Thursday and runs until Feb. 29.

CEO Daniel Bouton said in a conference call on Thursday that initial contacts with investors went "very well."

Analysts say Societe Generale needs the new funds to ward off unwanted predators. France's largest bank BNP Paribas SA, which has said it is mulling a bid, declined to comment on its intentions on Wednesday.

"Societe Generale needs to succeed at this capital increase which is needed to preserve a certain independence," said Axel Pierron, an analyst with research house Celent in Paris.

For the full year, SocGen confirmed that despite its recent troubles it made a net profit of 947 million euros, after 5.2 billion euros in 2006.

The trading scandal is "an isolated event," Pierron said. "Without this event, the results of Societe Generale were not at all bad."

Without the trading losses, Societe Generale said it would have gained 4.17 billion euros over the full year.

The trading scandal has raised questions about the bank's control procedures.

An internal report released on Wednesday said bank officials failed to follow up on warnings and carry out more detailed checks, leaving concealment tricks allegedly used by Kerviel uncovered.

The report commissioned by a committee of three independent board members detailed 75 warnings signs in Kerviel's exchanges, such as a trade with a maturity date on a Saturday or a missing broker name.

The report said "no initiative was taken to check the truth of affirmations" provided by Kerviel, "even when they lacked probability."

The signals weren't always flagged to superiors and "when the hierarchy was warned, they didn't react," the report said.

Kerviel claims his superiors must have known what he was doing but looked the other way. He is being held on preliminary charges of breach of trust, forgery and unauthorized computer activity.
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