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It's an elegantly French solution to a messy situation. Paris bank Societe Generale (SOGN.PA), hit by a massive rogue trading scandal earlier this year, [BusinessWeek.com, 1/24/08] has announced that its longtime boss Daniel Bouton will be replaced as chief executive officer, while retaining the job of nonexecutive chairman. Frederic Oudea, now chief financial officer, will become CEO, in what the bank describes as a move to strengthen corporate governance by splitting the functions of chairman and CEO.



That means not a single top SocGen executive has lost his job over the $7.8 billion trading loss, by far the biggest fraud ever sustained by a financial institution. That's remarkable -- the more so because preliminary findings by law enforcement authorities and the bank's own investigators showed that rogue trader Jerme Kerviel's supervisors failed to act on warning signals about his activities [BusinessWeek.com, 1/28/08] or even turned a blind eye because he was a rainmaker [BusinessWeek.com, 3/14/08].



Investors don't seem perturbed. On the contrary, SocGen shares rose 6.9% on Apr. 18 after the management change was announced. True, the stock is still down more than 20% this year, in part because of the overall swoon in financial institutions. But the markets have been reassured by the success of a recent $8 billion capital increase to shore up SocGen's finances and by the bank's generally upbeat outlook. SocGen said on Apr. 18 that first-quarter earnings were expected to show "resilience," prompting an upgrade from analysts at Goldman Sachs (GS).



Surviving the Worst

True, the management shakeup is an effective rebuke to Jean-Pierre Mustier, the head of the investment-banking unit where Kerviel worked. Until recently, Mustier was considered Bouton's heir apparent. Many bank-watchers think Bouton himself will be eased out of the chairmanship soon, especially if the ongoing investigation of Kerviel brings more embarrassing details to light.



But for now it appears Bouton and his team have survived the worst of the scandal -- and so has SocGen, whose plummeting share price could have made it prime takeover bait. Crosstown rival BNP Paribas (BNPP.PA), the most likely acquirer, has taken itself out of the running, while the subprime crisis has hobbled many of the other big European banks that might have taken a look.



In the end, the heaviest penalty could fall on Kerviel. He was released on Mar. 18 after five weeks behind bars and is now awaiting trial on charges including forgery and breach of trust.