Rogue trader to cost SocGen $7bn

[dipsydoodle]

Source: BBC NEWS

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.

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

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

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


Read more: http://news.bbc.co.uk/1/hi/business/7206270.stm

[dipsydoodle]

1. Further link now on Yahoo News

PARIS (Reuters) - French bank Societe Generale disclosed one of the biggest alleged frauds in financial history on Thursday, adding to a wave of gloom surrounding world markets battered by credit market losses.

SocGen, France's second-biggest listed bank, said it had uncovered an "exceptional fraud" by one of its traders.

It said this would cost the group 4.9 billion euros (3.7 billion pounds) and announced plans to raise 5.5 billion euros through a capital increase to shore up its balance sheet, also reeling from a crisis in global credit markets.

The fraud disclosure brought back memories of Nick Leeson, the British trader who in 1995 brought down blue-blooded merchant bank Barings after racking up huge losses.

http://uk.news.yahoo.com/rtrs/20080124/tts-uk-socgen-a8bf950_3.html

Their shares have been suspended.

[T_i_B]

2. Kick

:kick:

[Lasher]

3. Looks like he was trading in futures.

"The transactions which involved the fraud were simple - taking a position on shares rising...

[formercia]

4. I wonder if the trader recieved their Christmas bonus.

With every profit, someone takes a loss. The brokerage houses make money either way on the trade.

[zbdent]

5. I was going to ask how a freepturd was able to bring down a French bank ... and then I saw

"sophisticated and varied techniques" - and then realized it couldn't have been any of them ...

[eppur_se_muova]

6. Rogue trader to cost SocGen $7bn

Source: 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 fresh losses of 2.05bn euros related to the sub-prime mortgage crisis in the US.

The losses are four times greater than those made by Nick Leeson, the rogue trader who brought down Barings Bank.

Read more: http://news.bbc.co.uk/2/hi/business/7206270.stm

---

And here I thought the French disdained American ways!

[HowHasItComeToThis]

7. ROGUE TRQDERS CAUSING MARKET CRAZINESS ALSO

TOO MUCH LOOSE MONEY, IN THE HANDS OF YOUNG TRADERS.

[Turbineguy]

8. It's OK

DON"T PANIC! It's not sub-prime, only fraud.

[dipsydoodle]

9. Apparently

it was to do with vanilla futures - please don't ask me to explain that. Furthermore it is not thought that the culprit, whose whereabouts are currently unknown, did it for personal gain. The whole issue is just a very expensive mystery.

[muriel_volestrangler]

11. Société Générale fraud: A layman's guide

"vanilla futures" just means his job was to work out what all the other purchases, bets etc. the bank had made would do if the market as a whole went up or down - and then to make a trade on the market index to decrease the risk. Instead, he decided he knew better, and started to increase the risk.

These were not complex derivatives, but straightforward calls on whether the CAC in Paris or the DAX in Frankfurt would go up or down on any given day.

The trader was not employed to make educated guesses on which markets would go up or down. He was supposed to look at the bank's portfolio and bet in the opposite direction, to minimise risks for the trading book.

So if SocGen's other traders had bought into the equity markets, expecting a rally, he was responsible to hedge some of this risk through trading index futures. His job was to neutralise risk.

Based on the limited details in SocGen's statement, he appears to have gone beyond this remit and was taking "directional positions" instead. This seems to have been going on for some time.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/01/24/bcnguide.xml

[dipsydoodle]

13. Thanks for that

I couldn't quite grasp how vanilla could have had that effect ........lol.

[movoter]

15. Amazing

"French presidential aide Raymond Soubie said on LCI television that the trader had been dealing with more than 50 billion euros ($73.31 billion) — a figure greater than annual gross domestic product for entire nations such as Morocco, Bangledesh, Vietnam and Slovakia, according to 2006 IMF figures." http://ap.google.com/article/ALeqM5h4ncvzDOrXAnqyB9avT4zvg1iJTQD8UCVVJO0 This kid was playing with 73 Billion Dollars. Some say it actually caused the FED rate cut http://www.ft.com/cms/s/0/6f7cf740-cae7-11dc-a960-000077b07658.html Weird stuff

[FarCenter]

10. International finance is war by other means

Was he working for someone?

Who gained the $7 billion?

[T_i_B]

12. Rogue trader Jerome Kerviel: I'm not hiding

http://www.telegraph.co.uk/money/main.jhtml;jsessionid=SPQMLAHSSLCHBQFIQMGSFFOAVCBQWIV0?xml=/money/2008/01/25/bcnkerviel12.xml

The fugitive trader behind the biggest banking fraud in history was preparing to give himself up to the authorities today telling his lawyer he is not hiding from the police.

Despite seemingly being responsible for losing his employers Societe Generale £3.6bn, 31-year-old Jerome Kerviel has been free to come and go as he pleases since allegedly confessing all on Saturday night.

But Elisabeth Meyer, lawyer to the "highly strung and extremely intelligent" trader, insisted her client was "not on the run" and was "preparing to co-operate fully with the judiciary". Investigating judges and police are expected to interview him at the earliest available opportunity, after the Paris prosecutors office opened a preliminary hearing into the scandal.

Mrs Meyer said that Kerviel, who was responsible for plain vanilla futures hedging on European equity market indices, had told her he had nowhere to hide, even though he had not yet received formal notice of his sacking.

[dipsydoodle]

14. Fed bounced? check this out !

>
What also intrigues the Davos crowd is the extent to which SocGen's actions in reversing its rogue traders' bets on Monday and Tuesday were responsible for the sharp drop in European stock markets.

This matters - because that fall in share prices in part spurred the US Federal Reserve to announce its emergency cut in interest rates on Tuesday.
>
Davies told me: "Did the Fed know this was going to happen? If it didn't know it was going to happen, then why on earth wasn't it told? And if it did know it was going to happen could it not then see that it was likely to have an unusual effect on the market - and then was it reacting to a false market in a sense because SocGen was dumping a lot of shares on to the market?"

The notion that this rogue trader could have bounced the most powerful central bank in the world into a savage interest rate cut is alarming, to put it mildly.

http://www.bbc.co.uk/blogs/thereporters/robertpeston/