Caisse D’Epargne hit by unauthorised derivatives loss

Caisse D’Epargne, set to become the second largest retail bank in France if a proposed merger with Banque Populaire goes ahead, today revealed losses of €600 million on its equity derivatives book.

In a statement, the bank said it uncovered during routine internal controls that a team of traders in the bank’s proprietary trading division had taken unauthorised positions. The losses were incurred as a result of recent volatility in the financial markets.

An official at the bank confirmed that the team of half a dozen traders, along with a head of finance, have been suspended. The bank began its internal investigation into the incident today. Contrary to media speculation, the official insisted the finance director in question was not Julien Carmona, group executive officer in finance and risk management as well as a member of the management board.

This is France’s second alleged rogue trading incident of 2008. On January 24, Société Générale, France’s second biggest bank, announced a trading loss of €4.9 billion on its delta-one equity derivatives desk. The bank attributed the loss to the actions of a junior arbitrage trader, Jerome Kerviel, who allegedly took unauthorised positions and conducted fictitious trades.

By January, Kerveil’s unhedged positions had risen to a notional value of €49 billion, having allegedly begun the process of conducting fake trades soon after joining the desk in 2005.

See also: Genius or blunder?