Update: Societe Generale, a fraud for the ages
U.S. banks certainly have their problems, but for the moment no other institution can match France’s Societe Generale when it comes to sheer embarrassment. The bank said Thursday that a rogue futures trader managed to lose it more than $7 billion with a series of bogus trades over the course of the past year. The trader, identified by the Financial Times as Jérôme Kerviel, is being dismissed, the bank said. Bloomberg reports that the rogue trader ”didn’t enrich himself from the fraudulent trades” and cooperated over the weekend with the bank’s investigation.
SocGen’s black eye is among the worst losses on record, dwarfing the 1995 scandal in which trader Nick Leeson put Barings Bank out of business with a $1.4 billion futures trading loss and the 2006 Amaranth blowup in which Brian Hunter blew up a hedge fund with more than $4 billion worth of wrong-footed bets on natural gas prices.
The losses mean the bank, like struggling U.S. titans such as Citi (C) and Merrill Lynch (MER), will have to go to market to raise billions of dollars to rebuild its capital cushion for future losses. What’s the common thread? An analyst at a consulting firm tells the Associated Press that the problem, as with the mortgage mess stateside, lies with so-called risk management. “The situation reveals that banks, despite the implementation of sophisticated risk management solutions, are still under the threat that an employee with a good understanding of the risk management processes can getting round them to hide his losses,” he said.
SocGen chief Daniel Bouton offered to resign in the wake of the rogue trades but was turned down by the board, for reasons that weren’t explained. “He has not yet received his bonus for 2007, but I don’t think he will claim it,” Bouton said of Kerviel at a press conference, the FT reports. With any luck Bouton won’t claim his either.
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