(Agencies)
Updated: 2008-01-28 07:03

Societe Generale traders began unwinding Kerviel's losing bets at the beginning of European trading on Monday, just as Asian markets were in a free-fall and European shares were poised to plummet after a big drop in U.S. markets on the previous Friday. It took until Wednesday to finally close the books on Kerviel's adventures, the bank said.

Kerviel's lawyer cast suspicion on the way Societe Generale unwound the position, saying it did so in "totally unusual conditions."

"This decision was driven by other motives," he claimed, without elaborating.

Some experts have suggested Societe Generale may have exacerbated the fall and indirectly led to the U.S. Federal Reserve's subsequent decision to cut rates.

But in its explanatory note released on Sunday, the bank defended itself by saying the trades represented no more than 8.1 percent of the volume in futures trading each day on the Eurostoxx, DAX and FTSE.

Mustier said Kerviel's motivations were still unclear. "We don't know, we don't understand" what drove him to do it, he said.

"This event is a massive shock for us," he said.

The bank said Kerviel built up two portfolios of investments but that one of them consisted of "fictional operations," leaving the bank hugely exposed.

"In order to ensure that these fictitious operations were not immediately identified, the trader used his years of experience in processing and controlling market operations to successively circumvent all the controls which allow the bank to check the characteristics of the operations carried out by its traders," the bank's statement said.

"He had a very good understanding of all of Societe Generale's processing and control procedures."

It was the bank's most detailed explanation yet of the debacle that has further rattled the banking industry, already reeling from the subprime mortgage crisis in the U.S. Some observers have said the crisis could also leave the bank vulnerable to a takeover.

An aide to French President Nicolas Sarkozy suggested the state could step in to prevent any possible hostile bids.

"I think the state will not stand idly by if any predator attempts to take advantage of the situation," Henri Guaino told RTL radio on Sunday.

The situation has prompted calls for tighter regulation - 13 years after trader Nick Leeson, whose illegal speculation bankrupted British bank Barings, first highlighted the potential risks from rogue traders operating without proper oversight.

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