Societe Generale's CEO faced down mounting pressure for his resignation Wednesday over a trading scandal that cost billions, but his reprieve was swiftly followed by questions from the central bank about why operational "malfunctions" were ignored.

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Societe Generale’s CEO faced down mounting pressure for his resignation Wednesday over a trading scandal that cost billions, but his reprieve was swiftly followed by questions from the central bank about why operational “malfunctions” were ignored.

The company’s board rebuffed calls by President Nicolas Sarkozy for top executives to face the “consequences” of the huge losses resulting from the unauthorized trading, giving Chairman and CEO Daniel Bouton and co-Chief Executive Philippe Citerne their universal backing.

Bouton had offered to resign as the trading crisis unfolded last week, when the bank said it had lost euro4.82 billion (US$7.09 billion) in unwinding trades by 31-year-old futures trader Jerome Kerviel. The board refused his offer.

“The board asked me to stay at the helm of the ship in the storm we are in,” Bouton told France-2 television. “I am a man of duty. I am not going to jump overboard when the board asks me to stay and do my duty.”

Questions have mounted, however, about how Kerviel could have fooled his superiors, and how Societe Generale handled the discovery of his unauthorized transactions.

The bank’s controls “didn’t function like they should have” and “were not followed up appropriately,” Bank of France chief Christian Noyer said at a hearing before the French Senate, reporting on initial investigations conducted last week.

“We must focus on the reasons why the anomalies, the malfunctions, were not spotted, analyzed, or passed upward to a high-enough level, dealt with and followed up,” he said.

Kerviel told investigators that he believes his bosses turned a blind eye to his questionable deals as long as he brought in money for the bank, according to excerpts published Tuesday by two media outlets that were verified by a prosecution official.

The bank’s lawyer said Kerviel was lying, and its CEO insisted that the company’s role was “to divide our risks … never to expose ourselves to speculation of this type.”

Bouton asked, “Why did (Kerviel) think he was in another world, the world of big speculative finance? That’s not Societe Generale. We’re about our clients.”

Both Noyer and Michel Prada, the head of France’s financial market regulator, said they approved Bouton’s decision to secretly unwind Kerviel’s positions over three days before disclosing the record losses last Thursday.

Prada said Bouton “acted well,” and shareholders “were protected from what could have been a major crisis.”

The French Financial Market Authority, the AMF, will investigate stock movements to ensure there was no insider trading while the information was kept out of the public domain. A lawyer for a group of Societe Generale shareholders said he had filed a legal complaint Monday asking investigators to look into possible insider trading.

Societe Generale also announced it is setting up a committee to investigate what went wrong, with the help of auditing firm PricewaterhouseCoopers. The committee will examine the causes and sizes of the trading losses and look into whether the bank accurately communicated information about the scandal.

While board members were meeting, bank employees worried about their jobs and the fate of one of Europe’s most respected banks began streaming out of the Societe Generale’s headquarters in Paris’ business district in a spontaneous demonstration of support for Bouton.

“We are totally in solidarity with the president,” said Philippe le Blanc, 42, who has worked for the bank for seven years.

Headhunters, preying on employee worries about their bonuses after the loss, are looking to poach staff members from the bank. Jean-Pierre Mustier, head of the company’s corporate and investment banking arm, has said Societe Generale will take action to retain workers amid the crisis.

Bouton and Citerne have said they won’t receive bonuses or stock options for 2007 and will forgo salaries for the first half of this year.

Analysts are also speculating about the future of Societe Generale, which is seeking an extra euro5.5 billion (US$8.15 billion) in new capital. Some think the bank could be dismantled, with its units being divided up among other leading banks.

Prime Minister Francois Fillon has said his government will seek to block any hostile bid for the bank, raising eyebrows among EU competition authorities in Brussels, which cautioned France on Wednesday to treat potential bidders without regard to national interests.

SocGen spokeswoman Laura Schalk said there was no discussion at Wednesday’s board meeting of a friendly takeover offer for the bank. Bouton said it would be “strictly no problem” for the bank to remain independent because it is still profitable.

Analysts say BNP Paribas _ France’s largest bank and Societe Generale’s chief competitor _ would be the most likely buyer of all or part of the struggling bank. Other names mentioned include French rival Credit Agricole SA, Britain’s HSBC Holdings PLC, Germany’s Deutsche Bank AG, Spain’s Banco Santander Central Hispano SA and Italy’s UniCredit SpA.

BNP’s Chief Financial Officer Philippe Bordenave, speaking as the bank announced a drop in fourth-quarter profits for 2007 on Wednesday, refused to comment on Societe Generale’s future.

Shares of Societe Generale closed up 4.3 percent Wednesday at 81.80 euros ($121.15) in Paris. The stock, which has lost half its value since the middle of last year, has bobbed up and down since the announcement of the trading loss Jan. 24.

Meanwhile, French radio and television reported that police searched the Paris apartment of Kerviel’s older brother, Olivier Kerviel. Jerome Kerviel was released from police custody on Monday but barred from leaving France, and his whereabouts were unknown.


Associated Press Writers Pierre-Yves Roger, Angela Charlton and John Leicester contributed to this report.