KEY POINTS:
PARIS - The French trader accused by Societe Generale of a fraud costing $4.9 billion euros ($9 billion) is ready to talk to police, his lawyers says.
Junior employee Jerome Kerviel, 31, is thought to be behind the biggest rogue trader scandal in history.
However, lawyer Elisabeth Meyer told BFM TV in France: "He is not running away. He is at the disposal of the police."
France's central bank and government scrambled to shore up confidence in the banking system after "SocGen", France's second-biggest bank, said it had been the victim of massive and "exceptional" fraud.
Its losses spiralled to 4.9 billion euros as it tried to close out the rogue positions in Monday's sliding market.
The country's top banker dubbed the trader a "a genius of fraud".
SocGen declined to give a name, but three sources at the bank named him as Jerome Kerviel, 31, a trader on the bank's award-winning equity derivatives desk earning less than 100,000 euros a year. Kerviel could not be reached for comment.
If fraud is proved, the loss will be the biggest caused by a single trader, dwarfing the $1.4 billion loss by trader Nick Leeson that broke Barings, and the $2.6 billion Sumitomo Corp lost in rogue copper trades in the 1990s.
It also eclipses a $6 billion-plus loss racked up by hedge fund Amaranth trader Brian Hunter and his team ahead of the fund's collapse in 2006.
"It was an extremely sophisticated fraud in the way it was concealed," said Societe Generale Chairman Daniel Bouton, who offered to resign and was asked to stay on by the board.
SocGen, one of France's oldest banks but a world leader in free-wheeling modern financial derivatives, said the losses came to light at the weekend. It said the trader had tried to cover up bad bets on the stock market.
Shares in SocGen fell more than 4 per cent to 75.81 euros.
Traders said the shares were cushioned from further falls after the French financial establishment moved quickly to shore up SocGen's shattered capital.
Instead of beating a path to cash-rich sovereign wealth funds, as some US banks have done during the recent credit slump, SocGen announced a capital increase of 5.5 billion euros and said this had already been underwritten by other banks.
France's prime minister reassured investors that SocGen's woes were isolated from the malaise sweeping global financial markets after a meltdown in US sub-prime credit markets.
"It is a serious case, but at the same time it has nothing to do with the situation on the financial markets," Francois Fillon, speaking in Davos, Switzerland, said.
In addition to the fraud, however, SocGen unveiled a further writedown of 2.05 billion euros related to the credit crunch.
WORST NIGHTMARE
The Bank of France announced an inquiry by the Banking Commission. Bank of France Governor Christian Noyer said SocGen had been able to overcome the crisis because it was solid.
"Today we have seen that there was a glitch in the system that was exploited by someone who I think got round five successive risk control systems so who was without doubt a genius of fraud," Noyer said.
It said he had used a "scheme of elaborate fictitious transactions" to try to cover up his mistakes, but did not accuse him of profiting personally from his actions.
"He was not one of our stars," said a senior board member who declined to be named.
The announcement sent a shiver through the world banking industry, which is suffering a credit crunch as high-risk US mortgage borrowers default on their loans.
Lehman Brothers CEO and Chairman Richard Fuld called it "everyone's worst nightmare" in a comment from the World Economic Forum in Davos, Switzerland.
In addition to the fraud, SocGen unveiled a further writedown of 2.05 billion euros related to the credit crunch.
"We get the feeling that the financial markets have become a big casino which has lost control. It seems incredible that the Societe Generale can lose 5 billion through one operator," said Alain Crouzat, a portfolio manager at Montsegur Finance.
Others said the crisis at SocGen, one of the top 10 banks in the eurozone by market value, could spell trouble elsewhere.
"The most serious thing is that this puts into doubt the risk-management systems at some banks," said Fortis analyst Carlos Garcia. "You can't suddenly announce this from one day to the next a hit of $7 billion. In the light of this, what we've done is to downgrade banks that are very linked to trading income or whose capital base is weak."
Analysts said the episode would have a major impact on the reputation of SocGen, which was founded in 1864 and is one of France's most prestigious blue-chip companies.
Several said the bank, which has for years been coveted by larger French rival BNP Paribas, could face a battle to remain independent.
Shares in BNP rose 7 per cent.
SocGen said it expected a 2007 net profit of between 600 and 800 million euros, well below its 2006 profit figure.
-REUTERS
