French Police Search Societe Generale Saturday January 26, 7:07 am ET By Angela Charlton, Associated Press Writer French Police Search Societe Generale in Probe of Fraud Blamed on Rogue Trader PARIS (AP) -- The chief executive of France's second-largest bank insisted in an interview published Saturday that its actions after discovering a trader had cost it billions in a massive fraud scandal did not fuel turmoil on world markets. ADVERTISEMENT Societe Generale was the target of a police search as investigators moved swiftly to sort out what happened. The bank unsettled the already shaky banking sector when it said that 31-year-old Jerome Kerviel had put tens of billions of dollars at risk in one of history's biggest frauds. The trader also cost the bank more than $7 billion by making bad stock market bets, Societe Generale said. Skeptics from Kerviel's neighbors to France's prime minister have questioned whether a single futures trader could have managed such large sums. Adding to the mystery, the bank said Kerviel may not have made any personal gain from his unauthorized trades. The bank said it discovered the fraud last weekend and unwound the trader's losing bets starting Monday, when world markets tumbled. Some analysts have questioned whether Societe Generale exacerbated the fall and indirectly led to the U.S. Federal Reserve's subsequent decision to cut rates. "It's absurd!" CEO Daniel Bouton said of the suggestion, in an interview with Le Figaro daily. "Anyone could calculate our contribution to the market in recent days." Bouton was quoted as saying the bank, in closing the trader's unauthorized positions, respected market rules that forbid any player from intervening with sums worth more than 10 percent of a given market. The bank says that is why it took three days to close the positions. The bank maintains it was the biggest loser in the case, because of the timing of the discovery. Kerviel had been investing the bank's money by hedging on European equity market indices. That means he made bets on how the markets would perform at a future date. Bouton said the trader had been betting throughout 2007 that markets would fall. "He was therefore winning, virtually," he said. But the bank says he had overstepped his authority and was wagering more money than he should have. So at the beginning of January, Bouton said, the trader voluntarily created losing positions, to neutralize his earlier gains and cover his tracks. But markets dropped this month, and fast. "This sad affair veered into a Greek tragedy: His virtual losing position became huge," Bouton was quoted as saying. The bank's systems discovered an anomaly on Jan. 18, he said. At midday that day, a Friday, the trader's positions were neutral, but by the end of trading that day the positions were losing $2.6 billion, Bouton said. On Sunday, the full scale of the problem was revealed to the bank's management -- "enormous and totally abnormal," Bouton said. "I decided ... to close the positions and alert the supervisory authorities." When Asian and European markets collapsed Monday, "that had a catastrophic effect. The losses of Societe Generale became even more enormous," he was quoted as saying. Ultimately it took three days to close the positions, and the bank lost $7.2 billion. Bouton said the overall health of the bank was not at risk, comparing the situation to arson at a factory of a big manufacturer -- a devastating, but one-time, loss. Asked if the bank could once again be the target of takeover speculation, he said, "It wouldn't be the first time." Financial police searched the bank's headquarters Friday night, said spokeswoman Stephanie Carson-Parker. She gave no other details. Police also searched Kerviel's apartment. Paris prosecutors are conducting a preliminary investigation based on three complaints: one by the bank accusing 31-year-old Kerviel of fraud, and two by small shareholders. Kerviel's whereabouts are unknown, though his lawyer says he is not fleeing. French presidential aide Raymond Soubie said the trader had been dealing with more than $73.3 billion. That figure outstrips the bank's market capitalization of $52.6 billion, and is close to the annual GDP of entire nations such Slovakia, Qatar or Libya. It remains unclear whether Kerviel's actions, if proved, were out of malevolence, ambition or some other reason. Three union officials representing Societe Generale employees said managers at the bank who briefed them about the fraud told them Kerviel was having family problems. The debacle generated buzz at the World Economic Forum in Davos, Switzerland, and raised questions sector-wide about risk management. The bank's shares have lost nearly half their value over the past six months. After an up-and-down day Friday, the shares closed down 2.5 percent at $108.62. The company, which also posted another $2.99 billion subprime-related loss, planned to raise $8.02 billion in new capital. Associated Press writer Cecile Roux in Paris contributed to this report.