Rogue trader to cost SocGen $7bn

[[R_H]]

BBC

French bank Societe Generale says it has uncovered "massive" fraud by a Paris-based trader which resulted in a loss of 4.9bn euros ($7.1bn; £3.7bn).

The bank said the fraud was based on simple transactions, but concealed by "sophisticated and varied techniques".

It also announced new write-downs of 2.05bn euros related to the sub-prime mortgage crisis in the US.

The bank's shares, which were suspended in the morning, lost 3.6% when they resumed trading.

The bank, one of France's largest, will need to seek 5.5bn euros in new capital to offset the losses.

But it said it would still make a profit of 600m to 800m euros for 2007, despite the blow to its balance sheet.

'Secret trade'

"One trader... had taken massive fraudulent directional positions in 2007 and 2008 beyond his limited authority," the bank said.

It added that the trader had "in-depth knowledge of the control procedures resulting from this former employment in the middle-office".

"The transactions which involved the fraud were simple - taking a position on shares rising - but hidden using extremely sophisticated and varied techniques," chief executive Daniel Bouton said in a letter to the bank's customers. The bank said that the trader had confessed to the fraud and was being dismissed. His managers were to leave the bank as well.

"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 without anybody finding out," said Ion-Marc Valhi at Amas Bank.

Frederic Hamm, fund manager at Agilis Gestion, believes that the fraud "impacts the reputation of the bank".

Mr Bouton offered his resignation but it was rejected by the board, the bank said.

Richard Fuld, the chairman of Lehman Brothers, told BBC News in Davos that "nothing stuns me, nothing really surprises me these days."

'Unprecedented event'

The bank's losses have seriously dented its profits for 2007.

The company will announce its full year results on February 21, and it said that it expects its 2007 net income to be in the range of 600m-800m euros.

Shares in Societe Generale have fallen by nearly 50% in the past six months. Societe Generale is also going to raise 5.5bn euros through a capital increase "to strengthen its capital base".

Meanwhile, another French bank, BNP Paribas, said that "it has not revealed any loss of item that would justify any particular warning to the market".

Gilles Glicenstein, BNP Paribas chief executive, suggested that "there is still some information missing to understand what happened" at Societe Generale.

"Because the scale of the fraud is so large, there must be a complex explanation... For Societe Generale, it's an unprecedented event," he added.

Mr Glicenstein also said it was not good news for banks in general, as "it can create doubt".

"In other periods, this type of news was hidden, but today, there is a tendency to reveal everything and maybe it's by revealing everything that confidence can return," he said.

[White Haven]

...It's probably a bad sign that my first thought was 'What, 40k's landed in Paris?'

That aside...wow. ONE GUY doing that kind of financial damage? That's equal parts impressive and scary; normally it takes, say, a head of state to do that kind of harm.

[PeZook]

...It's probably a bad sign that my first thought was 'What, 40k's landed in Paris?'

That aside...wow. ONE GUY doing that kind of financial damage? That's equal parts impressive and scary; normally it takes, say, a head of state to do that kind of harm.

I wonder why he didn't bugger out as soon as he got the first billion

[White Haven]

Arrogance and stupidity, the usual pairing. 'Oh, I can't be caught, and more abstract numbers than I can ever use mean I'm successful!' Well, that or he's a Chaos cultist...Khorne-worship would explain the French tendency towards riotting.

[Glocksman]

...It's probably a bad sign that my first thought was 'What, 40k's landed in Paris?'

That aside...wow. ONE GUY doing that kind of financial damage? That's equal parts impressive and scary; normally it takes, say, a head of state to do that kind of harm.

I wonder why he didn't bugger out as soon as he got the first billion

I'm not certain about this, but I don't think he moved billions directly into his own pocket.
My GUESS is that he was paid a commission for each trade, and that the bigger the trade, the bigger the commission.

Still, even a 1% commission on several billion is a lot of money.

[Mobius]

Well; it's pretty concerning: working in the fund administration (and for one direct competitor of Société Générale); having "secret trades"; would mean an pretty incompetent Middle Office and an abyssmal FA:

Every modern FA should get info via SWIFT tickets and match it to their position and get a warning if the NAV of portofolio is different from the depositary bank.
i also find that's really weird and something's missing...

[Mobius]

One thing i find really strange now that i think about it; if the write off is 5bn € after closing position; it'd mean that even considering an enormous loss 25%
it's still 20bn€ ; it can't go unseen; i won't believe it; we have a check procedure when the difference between portofolio position in accounting and the one in depositary banks is 10cts.
5 billions € (if we had a 100% loss: unbelievable if it's normal equities) just gone AWOL.
I don't buy it, something's fishy. Even if he had the middle office in his pocket; the FA should have seen it.

[SirNitram]

I'm waiting for everyone to blame the massive market hits on this guy instead of the looming meltdown of lending.

[Dahak]

One thing i find really strange now that i think about it; if the write off is 5bn € after closing position; it'd mean that even considering an enormous loss 25%
it's still 20bn€ ; it can't go unseen; i won't believe it; we have a check procedure when the difference between portofolio position in accounting and the one in depositary banks is 10cts.
5 billions € (if we had a 100% loss: unbelievable if it's normal equities) just gone AWOL.
I don't buy it, something's fishy. Even if he had the middle office in his pocket; the FA should have seen it.

He's certainly not the first one who managed to do something like this. He's just currently the winner in the size department.

[Glocksman]

I'm waiting for everyone to blame the massive market hits on this guy instead of the looming meltdown of lending.

In the same tinfoil hat vein, I saw several posters in the BBC's 'comments' section saying that this was merely a cover up for the bank's subprime losses.

It could be true I suppose, but to me it seems the equivalent of confessing to a murder in order to clear yourself of an armed robbery charge.

[Stravo]

We've been involved in several of these "rogue trader" cases and yes it happens enough in that there is a whole specialty on rogue trading cases. This one I'm pretty sure is the largest single rogue trader loss but there have been others.

As to why they stay in, my experience is that when they're in for millions already they figure what else do they have to lose? They honestly think sometimes that they just might be able to win all that money back eventually. Imagine them like that poor bastard at the Blackjack table thinking he can turn it all around with a few lucky hands and then digging his hole deeper. Problem is, it's not his money.

You know, having been involved with traders for years, usually defending the institutions they fucked over I can safely say if you think Lawyers are scum you never met a trader. These guys are pure scum of the earth and they're arrogant douches to boot. And unlike lawyers the services they render are questionable as their usefulness to society at large.