“Had SG sat it out, they might have mitigated the loss, but I suspect they couldn’t legally do that”
I don’t know about the legality of it, but it would have been imprudent. Once word leaked out (and it WOULD leak out) that they were sitting on this position, their counterparts in the market would move in for the kill, increasing the losses perhaps beyond their capacity to cover (think LTCM ). The possibility that the resulting collapse of the 2nd largest bank in France might spread and blow back on the initial winners might not occur to the participants until it was too late.
No, unwinding fast, before their problem was widely known, was the prudent thing to do.
Perhaps he was a scapegoat for the bank’s actions. The loss was too much for the bank to accept responsibility for so they made a patsy agreement with the suspect and he went away.