France's favourite savings bank admitted yesterday that it had suffered a €600m (£470m) loss caused by rogue trading in the futures market in a scandal that is eerily reminiscent of the €5bn Kerviel affair that rocked the country earlier this year.
Caisse d'Epargne, known affectionately in France as "the squirrel", said a group of traders had taken larger than authorised gambles on equity-linked derivatives. Their positions, uncovered in a routine check, had to be unscrambled in the midst of last week's market meltdown, leaving Caisse d'Epargne with a €600m loss.
The bank, which is in the process of merging with fellow French mutual Banque Populaire, would make no comment about possible criminal action against the six traders said to be involved. A senior manager is understood to have been fired, while other employees have moved to other positions.
Caisse d'Epargne, a co-operative which holds half of all savings accounts in France, told its 27 million clients that it remained financially "solid" and that the loss would not damage their capital or earnings. Nevertheless, the news is an embarrassing blow to the French government. President Nicolas Sarkozy goes to Washington this weekend to try to persuade President George W Bush to support his moves for a less "speculative" rebuilding of the world financial system.
The finance minister, Christine Lagarde, ordered France's banking watchdog to hold a special audit at Caisse d'Epargne yesterday and to start a similar investigation at all other French banks. The bank said: "Due to the extreme volatility in the markets and the market crash of last week, the Groupe Caisse d'Epargne has had a significant market incident in share derivatives that has led to a loss in the order of €600m."
It insisted that its asset base of more than €20bn would be enough to absorb the loss on its normal half-year balance sheet. The news could complicate – but is unlikely to disrupt – the government-sponsored talks under way to merge Caisse d'Epargne with Banque Populaire, a deal destined to create France's second biggest retail bank.
The two banks were already jointly 70 per cent owners of the investment bank Natixis, which has been one of the most damaged French victims of the global credit crisis.
Officials at Caisse d'Epargne said that a small team of traders had ignored tight ceilings laid down because of the volatility of markets and taken larger than authorised positions on equity derivatives – gambles on the future direction of stock markets.
This is the same area in which Jérome Kerviel took huge, unauthorised €50bn gambles in the name of the French bank Société Générale in 2006-07, which led to a gigantic €4.8bn loss when his positions were unscrambled in a rapidly falling market in January.
Caisse d'Epargne is a symbol of old-fashioned banking security to many French people. Its 17 regional "caisses" have a branch, with a squirrel sign, on the main street of almost every town in France. These co-operatively owned regional banks are the sole share-owners of the central body, the Caisse Nationale des Caisses d'Epargne (CNCE).
That a team of traders from such a "traditionalist" bank should have taken such unauthorised risks, despite the publicity given to the Kerviel affair, caused shock and consternation in France yesterday.
Mme Lagarde said: "I am especially frustrated and discouraged that this should happen at this time... I am discouraged because we are putting in place a powerful component of the action [to rescue banks] decided by members of the Eurogroup [of countries using the euro] on Sunday. The discovery of this loss could not have come at a worse moment."
Officials at Caisse d'Epargne said the first indications suggested that the traders – part of the bank's "proprietary" trading team, investing the bank's own assets – were not trying to enrich themselves. They were following a hunch on the direction of the markets.
According to the French press, Julien Carmona, the finance director of CNCE, has been fired. Another "half-dozen people" have been shifted to other jobs.
The proprietary trading arm of Caisse d'Epargne was due to close down as part of the merger with Banque Populaire.
This is the third rogue trading incident involving a French bank in the past 13 months. In addition to the Kerviel affair, Crédit Agricole reported a €250m loss due to unauthorised trades at its US operation in September 2007.