Open

Coming up

Don't miss

Replay


LATEST SHOWS

THE INTERVIEW

Exclusive: Israel's US ambassador speaks to FRANCE 24

Read more

#THE 51%

World War One: The war that changed women’s lives

Read more

FRANCE IN FOCUS

Ségolène Royal goes for green

Read more

THE OBSERVERS

A look back at some of the Observers' best stories

Read more

DEBATE

Argentina Defaults: Kirchner Cries Foul Over 'Vulture Funds' (part 2)

Read more

DEBATE

Argentina Defaults: Kirchner Cries Foul Over 'Vulture Funds'

Read more

AFRICA NEWS

Ebola death toll tops 700

Read more

AFRICA NEWS

Dozens of youths trampled to death on Conakry beach

Read more

MEDIAWATCH

Renault's women drivers ad deemed sexist

Read more

  • Exclusive: Israel's US ambassador speaks to FRANCE 24

    Read more

  • Live: Israeli soldier feared captured, ceasefire 'over'

    Read more

  • Ugandan court strikes down anti-gay legislation

    Read more

  • Regional summit to tackle deadly Ebola outbreak

    Read more

  • French hospital to open wine bar for terminally ill patients

    Read more

  • €2.5 million in cocaine ‘disappears’ from Paris police HQ

    Read more

  • Appeal court keeps French rogue trader Kerviel in jail

    Read more

  • Air France ground workers to strike on August 2

    Read more

  • Interactive: France’s new plan to counter jihadism in Africa

    Read more

  • Ukrainian army suffers losses in separatist attack

    Read more

  • Dozens killed and injured in Taiwan gas blast

    Read more

  • Argentinian markets plummet following default

    Read more

  • French Jews speak of growing fear in Paris amid Gaza conflict

    Read more

  • Video: Inside Hamas ‘terror’ tunnels in Gaza

    Read more

  • Sierra Leone declares state of emergency over spread of Ebola

    Read more

Societe Generale announces seven billion euro losses

Latest update : 2008-01-24

Trading in shares of French bank Societe Generale was supended after the bank said a sole trader was responsible for a 4.9 billion euro fraud. The bank has also lost about two billion euros due to the US subprime crisis.

French banking giant Societe Generale said Thursday that a single rogue trader carried out a massive 4.9-billion-euro (7.15-billion-dollar) fraud -- one of the biggest in the finance industry.
  
Trading in the bank's shares was suspended on the Paris stock exchange after the revelation of the fraud along with a two-billion-euro loss stemming from the crisis in US subprime mortgage market.
  
The bank said the losses cut its 2007 profit to 600-800 million euros from 5.2 billion in 2006 and that it had carried out a 5.5 billion dollar capital increase because of the fraud "and in order to strengthen its capital base."
  
"I have the duty to inform you that the management of Societe Generale has discovered an internal fraud of a considerable scope, carried out by a member of staff in its financing and investment division," chairman Daniel Bouton said in a statement released on the bank's web site.
  
The bank announced separately that the fraud was worth 4.9 billion euros and that it had also lost about two billion euros because of the US subprime meltdown.
  
The new rogue trader has not been named but brings immediate comparisons to Nick Leeson, the British futures trader who lost 1.5 billion dollars at Barings, causing the failure of the venerable British bank in 1995.
  
Bouton said the Societe Generale trader had been suspended and that legal action would be taken against him.
  
He said the bank had also fired "executives, including leaders, responsible for the supervision and controls on the operations concerned." Bouton offered his resignation at an emergency board meeting on Wednesday but the bank said this was rejected.
  
"The transactions which involved the fraud were simple -- taking a position on shares rising -- but hidden using extremely sophisticated and varied techniques," Bouton said in his statement.
  
He added that he only found out about the fraud on Sunday and that the governor of the Bank of France had been informed.
  
The French central bank later said it would carry out an inquiry into the conditions under which the fraud occurred.
  
"The loss suffered is very big. All measures were taken on the spot to contain this. The failure of control procedures has been identified and corrected to avoid any new risk of a comparable nature."
  
Bouton sought to reassure investors despite the crisis, which he described as "sad and regretable."
  
"In effect, most of its areas, in France and abroad, have continued to give good and sometimes excellent operating results."
  
Bouton said the capital increase would more than compensate any losses from the fraud and the subprime damage and that it had been fully underwritten on Wednesday.
  
The chairman insisted that the bank could rebound from the crisis and resume the long years of profits it has known. "I see there, with the support of our shareholders and the engagement of our staff, a profound reason for optimism."
  
The bank said in a separate statement that its rogue trader had been carrying out what it called "vanilla futures hedging" on European equity markets.
  
It said the trader took out "massive fraudulent directional positions in 2007 and 2008 beyond his limited authority."
  
"Aided by his in-depth knowledge of the control procedures resulting from his former employment in the middle office, he managed to conceal these positions through a scheme of elaborate fictitious transactions."
  
It said these were discovered and investigated on January 19 and 20.
  
"The employee who has confessed to the fraud has been suspended and a dismissal procedure has been initiated. The individuals in charge of his supervision will leav the group."
  
The statement said that Societe Generale had also ordered a write-down of 2.05 billion euros because of the subprime crisis. It said 1.1 billion euros was because of US residential mortgage risk, 550 million euros because of exposure to "US monoline insurers" and 400 million euros in additional provisions because of the problems.
  
A Credit Agricole trader in New York cost the French bank 230 million euros in September. This was not attributed to fraud however.

Date created : 2008-01-24

COMMENT(S)