Rogue Trader takes down French Bank....

PeterUK_IHB

PeterUK_IHB

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Rogue trader to cost SocGen $7bn

<strong>French bank Societe Generale has announced losses of 6.9bn euros ($10.2bn, £5.2bn), blamed on a fraud by its trader and the credit crunch. </strong>

<p>Societe Generale said it uncovered a fraud by a Paris-based trader, which resulted in a 4.9bn euros ($7bn) loss. </p>

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

<p>The bank, one of France's largest, will need to seek 5.5bn euros in new capital to make good the losses. </p>



<p><strong>'Secret trade' </strong></p>

<p>"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. </p>

<p> </p>



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



<p>Chief executive Daniel Bouton offered his resignation but it was rejected by the board, the bank said. </p>

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

<p>Shares in the bank were suspended on Thursday. </p>

<p>Since the beginning of the year, the bank's shares have declined by 50%. </p>

<p><strong>Capital increase </strong></p>

<p>The bank's losses have seriously dented its profits for 2007. </p>

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

<p>Societe Generale is also going to raise 5.5bn euros through a capital increase "to strengthen its capital base". </p>

<p>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". </p>

<p> </p>



Story from BBC NEWS:


http://news.bbc.co.uk/go/pr/fr/-/1/hi/business/7206270.stm





Published: 2008/01/24 08:38:31 GMT

 
<p>Bwwwhahahah! - Dogbert</p>

<p> SocGen probably was the culprit in Monday's selloff</p>

<p>Commentary: It now seems clear what triggered Monday's selling</p>

<p> <a href="http://www.marketwatch.com/news/story/socgen-probably-black-monday-culprit/story.aspx?guid=%7B9A84342A-D679-45B6-8C93-8804A898FE4E%7D">http://www.marketwatch.com/news/story/socgen-probably-black-monday-culprit/story.aspx?guid=%7B9A84342A-D679-45B6-8C93-8804A898FE4E%7D</a>


</p>

<p class="MsoNormal" style="VERTICAL-ALIGN: bottom"><a href="http://www.marketwatch.com/news/story/socgen-probably-black-monday-culprit/story.aspx?guid=%7B9A84342A-D679-45B6-8C93-8804A898FE4E%7D"></a></p>
 
<p><a href="http://www.bloomberg.com/apps/news?pid=20601087&sid=aWplLsSN.cGk&refer=home">http://www.bloomberg.com/apps/news?pid=20601087&sid=aWplLsSN.cGk&refer=home</a></p>

<p>Noyer didn't name the trader, who was later identified as Jerome Kerviel, 31. He did call the fraud ``very grave.'' </p>

<p>``It's not because he is on the run, because he is in the wild, that he shouldn't feel worried,'' Noyer said. ``Rest reassured that he won't find a job soon.'' </p>
 
<p>I don't know... one guy's fraudulent trades cost a bank $7 billion, and unwinding it cost the global market roughly 10% of it's "value"? Something sounded fishy when I first heard this explanation, and it still does. Especially because everyone is so blase about it, like this happens all the time. This sounds more like a hedge fund being forced to divest and some poor schmuck getting the blame. And wouldn't SocGen make this public a little sooner when it became clear their action had started a global panic? Nope, this doesn't pass the smell test.</p>

<p>That being said, with Bernake lopping off .75% from the Fed Funds rate, this was one more Black Swan on the pond.</p>
 
<p>Supposedly, he used to work in the department assigned to detecting fraud, and thus knew how to get around the systems.</p>

<p>But that's an awful lot of billions to be overlooked. Why not toss a poor homeless million my way? I could make it happy.</p>
 
<p>Societe Generale Loss Shifts Davos Focus to Fraud (Update2)


<a href="http://www.bloomberg.com/apps/news?pid=20601170&refer=home&sid=aT3PEXG8W20I">http://www.bloomberg.com/apps/news?pid=20601170&refer=home&sid=aT3PEXG8W20I</a></p>

<p>Kerviel built a virtual company within Societe Generale, bank officials said. He balanced each bet with a fictitious one for almost a year. Last week, a routine check found a trade that exceeded the organization's limits. A call to the other party in the trade found the transaction didn't exist. The investigation will take ``weeks or months,'' Noyer said today. </p>

<p>...</p>

<p>Kerviel drew on knowledge he acquired during six years in Societe Generale's back office, where he went to work in 2000 after completing a degree in market operations at the University of Lyon II, according to an alumni Web page. He had to breach five levels of controls to get away with his trades, Noyer said at a press conference yesterday. </p>

<p>``The transactions that were built on the fraud were simple, positions linked to rising stock markets, but they were hidden through extremely sophisticated and varied techniques,'' Societe Generale Chairman Daniel Bouton, 67, said in a letter posted on the bank's Web site. </p>
 
I was working in London during the Nick Leason fiasco and the bank I was working for put in controls to prevent this from happening to them, so I assume the french bank hadn't put these preventative measures in place
 
He was just arrested. <a href="http://news.aol.com/story/_a/rogue-french-trader-taken-into-custody/n20080126102509990011">Rogue French Trader Taken Into Custody - AOL News</a>
 
<p>How's this for a nice conspiracy theory, or a plot for a novel. Innocent if greedy young man is set up by his evil superiors, who have lost all that money themselves, and get him to push the final button on some losses which will enable them to put the blame on him for the whole thing.</p>

<p>You can add jailbreaks, pretty girlfriends, hiding at monasteries where the young man finds the holy grail, etc etc.</p>
 
<p>Just after I posted this, I read in a comment at Calculated Risk that the young man did his trading in his boss's books, so the boss got fired. At that the situation was different and more complicated than it seemed at first.</p>

<p>Gosh, I was just joking, but this looks like an actual possibility.</p>
 
<p>This is getting good......</p>

<p><em>Kerviel's lawyer cast suspicion on the way Societe Generale unwound the position, saying it did so in "totally unusual conditions."





"This decision was driven by other motives," he claimed, without elaborating.





Some experts have suggested Societe Generale may have exacerbated the fall and indirectly led to the U.S. Federal Reserve's subsequent decision to cut rates. </em></p>

<p>


<a href="http://money.aol.com/news/articles/_a/french-bank-says-trader-hacked-computers/n20080127170809990011">French Bank Says Trader Hacked Computers - AOL Money & Finance</a></p>
 
It was pretty stupid to unwind a very large position on a day when most markets were closed in the US. By doing so, the volume would be very light, and any move would be exacerbated to the downside. If you wanted to get top dollar while exiting your position, you would have waited until all the markets were open and there were more traders to provide some volume. If, however, your motivation was to cause a huge move in the market to influence the FED...
 
As per some comments on Calculated Risk, his bosses did know what he was doing, even tho it was against the rules, they let a lot of people do it, and they went along with it because for a while he was making lots of money. Then, all of a sudden, he lost lots, and is hung out to dry. Of course, there is probably lots more going on here, and many more revelations to come. I await them with glee.
 
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