Top heads roll at France's Caisse d'Epargne over €600m unauthorised loss

THE CHAIRMAN and chief executive of Caisse d'Epargne, one of France's most trusted savings banks, resigned after a lengthy board meeting over the weekend, called to assess the consequences of the €600 million unauthorised trading loss revealed last week.

Charles Milhaud (65), who in nine years at the helm had sought to transform the collection of local mutual savings institutions into a universal bank to challenge bigger rivals, on Sunday night accepted responsibility for the loss and said he would ask for no compensation. He will be replaced by the head of the Ile de France mutual, Bernard Comolet.

Caisse d'Epargne chief executive Nicolas Mérindol also resigned after being criticised for having rushed into a series of costly acquisitions, and finance director Julien Carmona will leave as well.

The board took almost seven hours to make its decision, weighing up the impact of a wholesale management change on the bank's hopes to merge with fellow French mutual group Banque Populaire. The two have been in talks about creating France's second-largest retail bank after Crédit Agricole.

Many feared that the departure of Caisse d'Epargne's top management could make a merger more difficult as there would be no obvious leadership to take over the merged group. According to a person close to the group, Philippe Dupont, head of Banque Populaire, is regarded as an unlikely candidate as he is also head of Natixis, the troubled investment banking business 70 per cent owned by the two banks.

The management changes come after investigations to inform the merger talks revealed that a team of equity derivatives traders in the savings bank's tiny proprietary division allegedly ignored instructions to limit risk and overran trading limits.

The discovery sparked outcry in France with President Nicolas Sarkozy calling on management to shoulder the consequences. The sense of outrage is amplified by the bank's reputation. Almost one-in-two French savers trust their money to the bank known as the "Squirrel". On Sunday night finance minister Christine Lagarde said she was "satisfied" with the board's decision.

The controversy marks a sad end to Mr Milhaud's 44-year career at the bank, having joined at the age of 21. Over the past 18 months he sought to prepare the bank for greater competition in its core savings business by consolidating 28 regional mutuals down to 17 bigger local institutions with greater resources. - ( Financial Times service)