Save content
Have you found this content useful? Use the button above to save it to your profile.
AIA

French rogue trader costs Societe Generale £3.7 billion

by
24th Jan 2008
Save content
Have you found this content useful? Use the button above to save it to your profile.

French bank Societe Generale announced this morning it has been the victim of massive fraud committed by one of its Paris-based trader. The gallic Nick Leeson concealed £3.7 billion of losses, a sum over four times greater than his Watford predecessor. The bank also revealed £1.5 billion of losses related to sub-prime US mortgages.

The Financial Times has named the rogue trader as Jerome Kerviel, 31, who worked in the bank’s Delta One products team. Soceite General said he joined the firm seven years ago, was paid a salary of less than 100,000 euros, and was responsible for betting on the future performance of the markets. Jean-Pierre Mustier, chief executive of the corporate and investment division, has stated he is convinced Kerviel acted alone.

The transactions involved were simple enough in nature – the rogue simply took a position on shares rising – but they were hidden using “extremely sophisticated and varied techniques”, added chief executive Daniel Boulton. The bank said that Kerviel’s former employment in the bank’s middle-office had left him with in-depth knowledge of the relevant control procedures.

The trader has confessed and been dismissed, and his managers are reportedly preparing to follow him. Boulton has offered to resign but the board have stood by him.

Other European banks have expressed scepticism such losses could be the result of a single individual.

“I am sorry but I have a hard time buying the fact that a trader was able to set up a 'secret trade' of 4.9 billion euros without anybody finding out,” Ion-Marc Valhi, of the Swiss bank Amas, told the BBC.

American and British banks have been more phlegmatic.

“Nothing really surprises me these days,” said Richard Fuld, chairman of Lehman Brothers.

After the news broke shares in the bank were suspended, but they dropped only 3.6% on resumption. Despite the losses, Societe General should still make a 2007 profit in excess of 600 million euros.

Tags:

Replies (0)

Please login or register to join the discussion.

There are currently no replies, be the first to post a reply.