Group Caisse d'Epargne, one of France's biggest savings banks, made a €600 million loss on equity derivatives trading when teh market crashed last week after a team of traders took unauthorised positions.

Caisse d'Epargne said normal internal controls had picked up the loss and sanctions had been taken against the individuals concerned. The French regulator has also been informed.

"Due to the extreme volatility in the markets and the market crash of last week, the Groupe Caisse d'Epargne has had a significant market incident in share derivatives that has led to a loss in the order of €600 million," it said in a statement. It added that it had assets of more than €20 billion and the loss would not affect its financial solidity or its customers.

The loss occurred in the bank's proprietary trading division which is in the process of being closed down following a decision taken in June. Instructions were issued to team heads to limit exposures, but the team of four to five traders allegedly exceeded their limits and were caught out by last week's stock-market crash.

It is understood that some of the individuals concerned have been fired and others moved to different positions.

Caisse d'Epargne said it made the discovery following the start of merger talks with Banque Populaire. If successful, the merger between the mutually-owned banks would create France's second-biggest retail bank after Crédit Agricole, which took over Crédit Lyonnais in 2003. The two banks are also majority shareholders in investment bank Natixis.

Caisse d'Epargne said the trading loss would be taken on its profit and loss account.

The bank is not listed on the stock market.

- (Financial Times service)