France says SocGen not pushed to merge

French Economy Minister Christine Lagarde said that Société Générale, hit by £3.5 billion in losses from rogue trades, was under no pressure to merge with another bank as its shares plunged.

"Société Générale is under no constraint to merge with another financial company," Ms Lagarde told France 2 television.

The trader blamed for the scandal, 31-year-old Jerome Kerviel, remained in custody, helping an investigation into how he kept his supervisors in the dark while losses piled up, prosecutors said. Mr Kerviel handed himself in on Saturday.

SocGen's shares tumbled yesterday after Citigroup said the French bank's franchise was "severely impaired". The shares fell by nine per cent in early trading and by 10.22 a.m. British time were trading 7.2 per cent lower at €68.55.

Citigroup also speculated that British-based bank HSBC, which already has a big retail and commercial banking presence in France, might be interested in buying SocGen.

Ms Lagarde's statement was the latest sign that France's establishment is rallying around to SocGen's defence in an attempt to stave off talk that a foreign rival might launch a takeover bid for the company as its market value sinks.

A top adviser to President Nicolas Sarkozy warned on Sunday the government would probably intervene if raiders made a move.

"I don't think the state would remain with its arms crossed if someone, whoever the predator, tried to take advantage of the situation," Henri Guaino told French television.

However, SocGen and the Bank of France are facing political flak from France's leaders, furious at being left in the dark while SocGen sought a capital boost and unbundled its massive loss-making positions with only central bankers in the loop.

SocGen's chairman, Daniel Bouton, who last week offered to leave but was asked to stay on by the board, said on Monday his resignation remained on the table, suggesting he may feel he has to go as criticism mounts of his handling of the crisis.

Mr Bouton went to London yesterday to drum up support for the bank's €5.5 billion emergency share issue, which has already been underwritten by two US investment banks.

Dealer's confession

The former Société Générale dealer accused of the worst trading fraud in bank history has confessed to police that he hid his activities from superiors but did not mean to harm the bank, the Paris prosecutor said yesterday.

The prosecutor said a formal fraud investigation had been opened and he had requested that 31-year-old trader Jerome Kerviel be placed in temporary detention.

He said Mr Kerviel had told police that he had concealed his trades but had done so because he wanted to enhance his reputation as a trader, not out of any desire to hurt the bank, which said it suffered a €4.9 billion loss as a result of his unauthorised trades.