Societe Generale, France's second-largest bank, announced that a single trader had cost it 4.9 billion euros ($7.1 billion) in one of the largest ever frauds by a rogue employee.
SocGen accused the trader of taking "massive fraudulent" positions in 2007 and 2008 on European equity market indices, leaving them nursing 4.9 billion euros of losses as they unwound the positions.
The trader later identified as Jerome Kerviel, joined SocGen in 2002 and was trading in one of the most basic financial instruments in the complex world of derivatives -- futures contracts on European equity indices.
It appears that he bet massively and mistakenly on a rise of European equity indices.
As a junior staffer, there were strict limits on the positions he could take, but he knew how to bypass these controls because of five years spent at the back and middle office of the bank at the start of his career.
"He managed to conceal these positions through a scheme of elaborate fictitious transactions," SocGen said in a statement.
Officials said there was no indication he was trying to steal money from the company, or was working with anyone else.
The Question is, how just one trader, all alone in the corner, could have beaten all those whiz kids in Societe Generale.
Soc Gen has a world-leading equity derivatives business, which regularly produces about a third of its overall profits, and a best in the industry return on equity at its investment bank. The discovery of a rogue trade in the heart of its equity derivatives business could be a serious blow to one of its most attractive assets.
The scandal raises serious questions about SocGen's risk control and balance-sheet transparency. It has lost its credibility making a takeover target, with U.K. bank Barclays PLC and other European rivals already being reported as potential acquirers.
CEO Daniel Bouton said “Societe Generale will launch a capital increase in the coming days in order to support capital adequacy levels and maintain external ratings at the highest international standards. The capital increase is fully guaranteed, and will offset the loss generated by the fraud.”
SocGen accused the trader of taking "massive fraudulent" positions in 2007 and 2008 on European equity market indices, leaving them nursing 4.9 billion euros of losses as they unwound the positions.
The trader later identified as Jerome Kerviel, joined SocGen in 2002 and was trading in one of the most basic financial instruments in the complex world of derivatives -- futures contracts on European equity indices.
It appears that he bet massively and mistakenly on a rise of European equity indices.
As a junior staffer, there were strict limits on the positions he could take, but he knew how to bypass these controls because of five years spent at the back and middle office of the bank at the start of his career.
"He managed to conceal these positions through a scheme of elaborate fictitious transactions," SocGen said in a statement.
Officials said there was no indication he was trying to steal money from the company, or was working with anyone else.
The Question is, how just one trader, all alone in the corner, could have beaten all those whiz kids in Societe Generale.
Soc Gen has a world-leading equity derivatives business, which regularly produces about a third of its overall profits, and a best in the industry return on equity at its investment bank. The discovery of a rogue trade in the heart of its equity derivatives business could be a serious blow to one of its most attractive assets.
The scandal raises serious questions about SocGen's risk control and balance-sheet transparency. It has lost its credibility making a takeover target, with U.K. bank Barclays PLC and other European rivals already being reported as potential acquirers.
CEO Daniel Bouton said “Societe Generale will launch a capital increase in the coming days in order to support capital adequacy levels and maintain external ratings at the highest international standards. The capital increase is fully guaranteed, and will offset the loss generated by the fraud.”
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