French judges have slashed the amount of compensation owed to Societe Generale (SCGLY) by Jerome Kerviel to €1 million ($1.12 billion) from €4.9 billion but upheld the bank's central claim that its former trader was responsible for losses that nearly brought the bank down.
The ruling, delivered Friday, found that SocGen shared the responsibility for its losses, leaving open the question of whether France's No. 2 bank will have to repay a €2.2 billion tax break received because of its status as a victim of fraud.
"Beyond the cunning and determination of the one who committed the acts, and the sophisticated methods used, such great damage would never have been possible without the uneven nature of Societe Generale's control systems, which created a high degree of vulnerability," according to a ruling by a Versailles appeals court.
SocGen shares recouped some of Friday's earlier losses to trade down 1% at €32.06.
Earlier on Friday France's junior budget minister said the state could seek repayment of the tax exemptions. "We will act on the court's judgment," Christian Eckert told French radio station Europe 1.
The repayments would reduce SocGen's tier one capital ratio, a key measure of bank strength, by about 60 basis points to 11.1%, Goldman Sachs warned in a note published in June. Kepler Chevreux, a French broker, said a loss of the tax break would threaten the bank's 2016 dividend.
The bank has insisted the tax exemption cannot be reclaimed, no matter what Friday's decision is, as Kerviel had already been found criminally liable in 2014.
A SocGen spokesman said Friday the bank had no immediate comment on the ruling.
The case against Kerviel dates back to 2008 when the trader amassed about €50 billion of unauthorized positions in European index futures, betting wrongly that the market would fall. SocGen lost €4.9 billion when it unwound the position and briefly teetered on the brink of collapse as a result of the trades and the wider global credit crisis.
Kerviel in 2010 was found guilty of fraud, ordered to repay the losses and sentenced to three years in prison. The ex-trader was never expected to repay the cash, but the legal victory enabled SocGen to reduce its taxes by €2.2 billion during 2009 and 2010.
Kerviel and his lawyers have always maintained that the bank encouraged traders to take unauthorized positions and turned a blind eye so long as they made money. That position gained credence in June this year when the prosecutor in the current case suggested that Kerviel shouldn't have to pay damages to SocGen. In a separate case, concluded in July last year, a judge ruled that SocGen was aware of Kerviel's trading activity and had dismissed him without cause. Kerviel was awarded €455,000 in damages, unpaid bonuses and salary following that ruling.