PARIS — In a locked room on the 33rd floor of Societe Generale's 36-story headquarters in western Paris, members of the bank's fraud-control team peer at their computers, scrutinizing the trades being executed by dealers in eight trading rooms on the floors below.

They're searching for clues that Societe Generale might harbor another Jerome Kerviel, the junior dealer who bank officials discovered in January 2008 had amassed some $72 billion of unauthorized trades — which, when unwound, cost the bank $7.1 billion in losses.

The sleuths investigate when a trader triggers one of about 80 different alerts built into the bank's proprietary security system.

They include exceeding a euro trading limit, deferring a transaction date or failing to take vacation — all behavior that Kerviel, now appealing a fraud conviction and a three-year prison sentence, displayed as he frantically tried to cover wrong-way bets on the direction of the stock market.

"We introduced specific controls to guard against what Kerviel did," says Severin Cabannes, the bank's deputy chief executive officer with responsibility for fraud and risk control.

"We can now say that his kind of fraud is no longer possible."

"Lower risk"

With Kerviel in mind, SocGen CEO Frederic Oudea has made "growth with lower risk" his top priority since taking over France's second-largest bank in 2008, repeating the phrase almost every time he speaks to analysts, investors and reporters.

Today, Oudea, 48, faces hazards from a different direction. SocGen and other French banks are heavily exposed to the sovereign-debt crisis enveloping Greece and other eurozone nations.

SocGen owns 88 percent of Athens-based Geniki Bank, whose stock was down 51.9 percent this year as of July 25, and held $3.6 billion of Greek debt at the end of March, SocGen reported.

"A default by Greece would trigger a catastrophe for Societe Generale," says Jacques-Pascal Porta, who helps oversee $400 million, including SocGen shares, at a Paris-based investment firm.

Oudea insists the bank has the resources to weather whatever happens in Greece.

"Given our exposure to Greek sovereign debt, the direct impact of any restructuring scenario would be manageable for the bank," he said.

SocGen's Greek exposure was one reason Moody's Investors Service announced on June 15 that it was reviewing the lender's rating and that of two other big French banks in anticipation of a downgrade.

France holds more Greek loans than any other European country: $56.7 billion, including $15 billion in sovereign debt, the Basel, Switzerland-based Bank for International Settlements says.

Shares plunge in July

In July, the panic spread from Greece to Italy after Moody's and Standard & Poor's said they were reviewing ratings for that country and its banks.

As the Italian crisis unfolded, SocGen's shares plunged, falling 14.4 percent from July 1 to July 11.

The lender's shares tumbled 5.5 percent more on July 18 after the release of the results of stress tests conducted by the European Banking Authority on 90 banks, including SocGen.

"The tests show that Societe Generale is at the tail end of large European banks, with a capital position that's more stretched than bigger rivals," says Francois Chaulet, who helps manage more than $290 million, including SocGen shares, at an investment firm in Paris.

European Union officials announced a new rescue package for Greece after markets closed on July 21 in which it would be given $231 billion of new aid with lower interest rates and longer repayment terms.

Private banks agreed to participate in the rescue by writing down the value of their Greek bonds by 21 percent as part of a bond exchange and debt buyback program.

"It's excellent news for banks, including SocGen," Chaulet says.

Beyond the sovereign-debt crisis, Oudea says he has addressed the issues that have caused 147-year-old SocGen to lose two-thirds of its market value since 2007.

On the same day that bank executives announced Kerviel's fraud in January 2008, they disclosed they had taken $3 billion in writedowns, mostly against U.S. debt securities SocGen held.

That turned out to be just a small part of about $16 billion in credit losses and writedowns the bank has reported since 2007.

And SocGen still has $43 billion of securities in its legacy assets division, which holds risky paper whose market value plummeted during the financial crisis.

Oudea's fraud controls are part of a larger reorganization.

The CEO has combined the once-autonomous equity derivatives unit, where Kerviel worked, with the fixed-income operation, grouping all of the bank's traders into a single capital-markets division.

In addition to strict, monitored trading limits, the bank has imposed a raft of other security measures, including biometric codes and frequent password changes for staff members seeking access to confidential financial data.

Overall strategy similar

Still, Oudea's overall strategy is little changed from that of his predecessor and mentor, Daniel Bouton, says Chaulet.

Bouton resigned as CEO in 2008 in the wake of the Kerviel scandal.

The lender relies for about half of its profits on its corporate and investment bank.

That division has only one product in which it's a world leader: equity derivatives, which are options on stocks and stock indexes that the bank creates for customers and trades for its own account.

And Oudea, like Bouton, is looking for future growth in volatile emerging markets, including Russia and the Middle East.

"My aim is to ensure that Societe Generale appears at the end of four years as one of the strongest banks in this landscape," Oudea says, grabbing a notepad and, with swift pen strokes, drawing a crude diagram showing Europe as the bank's hub and the Middle East, North Africa and Russia as the spokes.

At least for the short term, that commitment is hurting SocGen's bottom line.

SocGen's 2004 acquisition of Geniki Bank has never earned it a penny. In 2010, the Greek lender's losses almost quadrupled to $597 million, as steep public-spending cuts slowed the economy.

On May 4, Geniki reported a first-quarter loss of $143 million, double its deficit of a year earlier.

Affected by turmoil

Operations at SocGen's network of retail bank branches in the Middle East, including Egypt, Tunisia and four other countries, have been disrupted by the turmoil there.

And the bank has a 700-branch retail network in Russia that from 2008 to 2010 cost it about 450 million euros, according to SocGen data.

Partly because of its exposure to the Middle East and Greece, SocGen reported on May 5 that first-quarter profit fell 14 percent from a year earlier.

Meanwhile, SocGen continues to make money via equity derivatives.

They contributed more than 25 percent of sales for the group's corporate-lending and investment-banking division in 2010, according to estimates by Kian Abouhossein, a London-based analyst at JPMorgan.

"Societe Generale has a superb equity-derivatives business," says Abouhossein, who forecasts that in 2011, the French bank's unit will be No. 1 worldwide, ahead of Goldman Sachs Group.

SocGen will have $3.9 billion of revenue from equity derivatives this year compared with $3.4 billion for Goldman, he calculates. The bank itself doesn't break out separate numbers for derivatives.

Striding around SocGen's 35th-floor CEO suite, which commands a view of the Arc de Triomphe three miles east, Oudea says SocGen's management board in 2008 shared collective responsibility for Kerviel.

And he insists that the scandal — and the bank's purchase of tens of billions of dollars of toxic debt — are in the past.

If Kerviel hadn't happened, both Bouton and Oudea say, SocGen would have received praise for staying profitable during the credit crunch.

Some analysts disagree.

SocGen's bankers give themselves too much credit for their handling of Kerviel and the market meltdown, says Jerome Forneris, who helps manage $11 billion, including SocGen shares, at Banque Martin Maurel in Marseille.

"They told us at the time they had maximum risk controls, and they didn't see Kerviel," he says.

Forneris now says Oudea has done a good job of turning the bank around.

Dirk Hoffmann-Becking, an analyst who covers European banks at London-based Sanford C. Bernstein, says SocGen management's confidence in its strategy is misplaced. He says Oudea should curb his ambitions and stick with what works.

"Societe Generale should just try to be a decent retail- banking player in France, a corporate lender across Europe and do equity derivatives," Hoffmann-Becking says.