Oct. 20 (Bloomberg) -- Groupe Caisse d'Epargne, France's third-biggest consumer banking network, ousted its chairman and chief executive officer after suffering a 600 million-euro ($807 million) trading loss.

Charles Milhaud, chairman of the management board, will be replaced by Bernard Comolet, while Alain Lemaire will become CEO, replacing Nicolas Merindol, Caisse d'Epargne said late yesterday in an e-mailed statement. The supervisory board of Caisse d'Epargne also accepted the resignation of Julien Carmona, head of finance, the Paris-based lender said.

``This loss is the consequence at the same time of markets' exceptional volatility, and of the violation of instructions that the board and myself had given,'' Milhaud, 65, said in a separate statement. ``Nevertheless, I take entire responsibility for it,'' he said, adding that he is asking for no departure compensation.

The bank's proprietary trading team of about six people incurred the loss on equity derivatives after exceeding authorized limits on size and risk, a Paris-based official at customer-owned Caisse d'Epargne said Oct. 17. The latest French banking turmoil, said by President Nicolas Sarkozy to show an ``absence of responsibility'' at the bank, comes about nine months after Societe Generale SA suffered a 4.9 billion-euro loss from unauthorized bets by trader Jerome Kerviel, prompting risk- management questions.

Worst Week

The worst week on record for European stock markets drove Caisse d'Epargne's trading losses. The Dow Jones Stoxx 600 Index fell 22 percent in the five days ended Oct. 10 on concern the deepening credit crisis will push the economy into a recession.

A decision of Caisse d'Epargne's management board earlier this year to stop proprietary trading had not been implemented, Milhaud told French Sunday newspaper Le Journal du Dimanche yesterday. Milhaud said he was informed on Oct. 13 of a deficit of about 100 million euros, according to JDD.

``We were in effect exposed to much, much more,'' JDD quoted Milhaud as saying. ``It was urgent to unwind all these trades very rapidly.''

French Finance Minister Christine Lagarde has called for an inquiry into the trading loss at Caisse d'Epargne, which was set up after the Napoleonic Wars in the early 19th century to provide the poor with access to banking services. The group in 2007 had 4,770 bank branches and 51,200 employees, according to figures on its Web site.

Fake Hedges

In the Societe Generale case, trader Kerviel, 31, amassed 50 billion euros in trading positions, concealed with fake hedges. His eight-person desk wasn't allowed to have positions totaling more than 125 million euros. Investigations into the losses pointed to failures in risk management and supervision at France's second-biggest bank by market value.

Milhaud yesterday was quoted by JDD as saying that the internal control systems failed at Caisse d'Epargne. France's Central Bank, the country's bank regulator, is investigating the losses at Caisse d'Epargne.

Caisse d'Epargne's management will pursue a plan to merge its holding company Caisse Nationale des Caisses d'Epargne, or CNCE, with the holding company of Groupe Banque Populaire, Caisse d'Epargne said. On Oct. 8, Groupe Caisse d'Epargne and Paris- based Banque Populaire, which jointly control Natixis SA, announced plans to merge in a move that would create a company with a network of 8,200 branches in France, second to Credit Agricole SA, and 17.5 billion euros of combined revenue.

Entire Career

Milhaud had been Caisse d'Epargne's chairman since 1999. He spent his entire career with Caisse d'Epargne, where he started working in 1964 in the Mediterranean city of Sete, according to the bank's Web site.

Guy Cotret and Alain Lacroix remain members of the management board, Caisse d'Epargne said yesterday.

Comolet, the new chairman, is the head of Caisse d'Epargne's local bank in the Paris region Ile-de-France while Lemaire is the head of Caisse d'Epargne's Provence-Alpes-Corse regional bank.

Caisse d'Epargne's supervisory board took the decisions at a meeting yesterday, where it received an interim report on the trading losses.

To contact the reporters on this story: Anne-Sylvaine Chassany in Paris achassany@bloomberg.net; Fabio Benedetti-Valentini in Paris at fabiobv@bloomberg.net

Last Updated: October 19, 2008 21:58 EDT