Massive fraud by a rogue trader at Societe Generale SA has led to a €4.9 billion ($7.16 billion) [loss]…
[A single trader! $7.16 billion! Mmm hmMMmm…]
The bank, France’s second largest… revealed early Thursday that it had detected a case of “exceptional fraud” due to a single trader who had concealed enormous losses through a scheme of “elaborate fictitious transactions.”
The bank identified the trader as Jerome Kerviel. Mr. Kerviel, 31, joined Societe Generale in August 2000 and was working as a trader on the futures desk at the bank’s headquarter near Paris. He was in charge of futures hedging on European equity market indices, known as “plain vanilla” futures. The bank said he was able to dupe the bank’s own security system because he had inside knowledge of the control procedures gained from previous jobs with the bank [in the field of custodial work? Just guessing…].
Though Societe Generale says it first learned of what it termed “massive fraudulent directional positions” on Jan. 19, it waited until it could close out those trades before going public with the problem. Winding down the trades, the bank said, resulted in a €4.9 billion write-down, making it potentially the largest loss ever from an alleged rogue trader.
But that wasn’t the only bad news Societe Generale announced Thursday. It also said it was taking additional €2.05 billion write down in assets related to subprime exposure, and it would launch a capital increase of €5.5 billion in the “following weeks.”…
Mr. Bouton said SocGen had lodged a legal complaint against the trader who perpetrated the fraud, but the bank was unaware of his whereabouts. [Check the men’s room!]
[As usual, the ratings agencies are right on top of things…]
…Ratings agency Fitch downgraded Societe Generale’s long-term issuer default rating to AA- from AA following the news.