French bank Société Générale (SocGen) has revealed they lost billions of dollars through fraud by one of its Paris-based traders. 31-year-old Frenchman Jérôme Kerviel is reported to be behind the loss of 4.9bn euros (equivalent to $7.1bn or £3.7bn).
While SocGen has yet to officially name Kerviel, a legal complaint has been filed against the trader, accusing him of defrauding the bank by making unauthorised financial trades.
These trades were in effect large bets on European stock markets going up and were placed in 2007 and 2008 - but were hidden from managers, concealed by "sophisticated and varied techniques" according to SocGen.
The bank learned of the dodgy dealings last Friday, after a rogue trade made in December was investigated by a compliance officer. Following an internal investigation last weekend, SocGen then took action early this week to unwind the deals, as financial markets around the world plummeted. Some analysts have even speculated that Kerviel's actions could have contributed to the stock market turmoil and the US Federal Reserve's sudden decision to cut American interest rates.
The fraud has forced the bank into an emergency €5.5 billion rights issue in order to offset the losses. However SocGen is now considered vulnerable to a takeover bid (among those said to be interested are Barclays and Italy's Unicredit). It should be noted that the bank's action in raising capital is to cover not only Kerviel's actions, but a writedown of €2.05 billion, relating to US sub-prime losses (a writedown is a reduction in the value of an asset carried on a firm's financial statements).
Still it's odd that a supposedly "relatively junior" employee of the bank, earning less than €100,000 (about $146,000), including bonus, could arrange the world's largest fraud in banking history without anyone knowing.
Rogue trader to cost SocGen $7bn
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