Scandal-hit French bank Societe Generale opened its own inquiry on Wednesday into how it suffered history's biggest rogue trader loss, but resisted heavy pressure to sack its chairman and CEO.
SocGen, keen to close ranks to fight off potential predator BNP Paribas, said it had set up a special committee of independent directors, led by a retired car industry executive, to ensure that the causes and impact of the losses were fully identified by the investigation.
Some investors were appalled that SocGen Chairman and Chief Executive Officer Daniel Bouton was still in place.
"I find this very extraordinary," said Dirk Thiels, head of global equity funds at KBC Asset Management. "What we have seen at U.S. banks is that all the top people resigned when there were bad investments,'' he said.
"What happened at SocGen is really fraud. If a shareholder can't trust senior management to take responsibility for controlling the actions within an organization, who has to be responsible?'' he added.
Under heavy political pressure to sack Bouton, the 15-strong board has now twice backed the CEO, who offered to resign as soon as the bank uncovered the risky positions it disclosed last Thursday.
Politicians from President Nicolas Sarkozy down have called for sweeping changes in the wake of scandal. Support for Bouton ebbed back and forth on Tuesday when France's finance minister first appeared to call for him to quit, then changed her mind.
Bouton, author of a blueprint on how to run a French company, has pledged the bank will bounce back from its humiliation over illicit bets worth $70 billion placed by 31-year-old trader Jerome Kerviel.
But the scandal has shaken France's image of itself as a refuge against unfettered capitalism.
Rocking the Boat
The independent committee would ensure "that the causes and sizes of the trading losses announced by the bank have been completely identified,'' said a statement. Former PSA Peugeot Citroen CEO Jean-Martin Folz will chair the committee.
Larger French bank BNP Paribas refused to comment on market speculation it might bid for its wounded rival, nearly a week after SocGen disclosed 4.9 billion euros ($7.3 billion) of rogue trading losses.
SocGen shares rose as much as 10.4 percent on Tuesday, spurred on by rumors that BNP, France's biggest listed bank, might launch a bid for the weakened SocGen. Shares closed 4.3 percent higher on Wednesday after denied reports the bank would be open to takeover offers.
Bouton has already repelled one BNP bid in 1999. A person familiar with the matter said BNP had not ruled out a new bid for SocGen, which is worth around 36 billion euros at market prices compared with BNP's market capitalization of 60 billion.
BNP itself felt obliged by the scandal to bring forward a partial announcement of 2007 results, showing a lower but still solid 1 billion euro profit for the fourth quarter.
One scenario widely floated by bank analysts is a break-up of SocGen with its retail branches going to BNP and its investment banking arm to French bank Credit Agricole.
That could trigger a spat with unions who helped SocGen's management scupper BNP's 1999 takeover approach. They fear some of SocGen's 120,000 staff could lose their jobs.
"We will oppose any dismantling or takeover attempt of Societe Generale," said Michel Marchet from the CGT union. Although the players are private banks, a solution which appeals to France's hands-on politicians is seen as a must.
Ministers did not discuss a possible sale of Societe Generale at a cabinet meeting on Wednesday and any investment must be in the interest of the French sector, a spokesman said.
The government has warned off foreign or hostile predators, meaning any tie-up must be all-French and agreed by both banks.
The "ShockGen" scandal coincides with a crisis in credit markets, triggered by a meltdown in U.S. subprime mortgages. The global impact deepened when Swiss bank UBS unveiled $4 billion in new writedownson Wednesday.
SocGen has been forced to launch a capital increase to raise 5.5 billion euros to cover the losses, as well as a 2.1 billion euro writedown resulting from the subprime crisis.
Kerviel, a 31-year old junior trader, was placed under investigation for breach of trust and other misdeeds on Monday, but judges threw out a stronger accusation of attempted fraud.
Kerviel said in transcripts of interviews with police that his activities could not have gone undetected by SocGen.
SocGen's lawyer questioned Kerviel's account and his credibility and insisted the trader had acted alone.