PARIS, Oct 18: French bank Caisse d’Epargne said on Friday it lost around 600 million euros (800 million dollars) in a derivatives trading “incident” last week, prompting France’s president to warn heads must roll.

The dramatic loss suffered by the mutual bank, which counts almost one in two French savers as a customer, was the latest blow to confidence in a sector already ravaged by the credit crunch.

And President Nicolas Sarkozy warned that bank chiefs must bear the consequences, telling a press conference at an EU-Canada summit in Canada’s Quebec City that the loss was “unacceptable.

Everything points to an absurd lack of responsibility, Sarkozy added. I have said that in this crisis, everyone must assume their responsibilities, regardless of their position. Finance Minister Christine Lagarde ordered France’s banking commission to conduct an immediate audit of the bank’s trading activity, her office said, while stressing that there was no risk of the bank failing.

News of the loss came in the same week as directors of Caisse d’Epargne approved merger plans that would make it France’s second-largest retail bank.

“Because of the extreme volatility in the markets and the stock market crash of the week of October 6, the Caisse d’Epargne group underwent a major incident in the derivatives market,” a statement from the bank said.

According to a company source, the bank’s traders had not respected rules limiting how much they could invest in stock derivatives, despite having been specifically warned about the danger presented by “market conditions.

A company official, speaking on condition of anonymity, told AFP that a finance director from the group had been dismissed and half a dozen members of the team that made the losing trades had been disciplined.

The necessary steps to close this position and end this activity were taken. Sanctions have been decided upon and the necessary regulatory bodies have been informed, the company statement said.

The bank insisted the loss did not affect its stability.

Given the level of its equity capital -- more than 20 billion euros -- and its high level of liquidity, this loss does not affect the group’s financial solidity and will have no consequence for customers, it said.

It is merging with its smaller rival Banque Populaire, with which it owns an investment bank subsidiary, Natixis, whose stock has been battered during the current global financial crisis.

At the end of last year, the Caisse d’Epargne held 358 billion euros in savings. In the first half of 2008 its profits fell by 98.5 per cent to 21 million euros from 1.449 billion euros in the same period last year.—AFP