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French Bank Loses $7.1 Billion to Rogue Trader
by
findingDulcinea Staff
Société Générale, France’s second largest bank, has discovered that a single futures trader committed a “massive” fraud. The trader concealed the money using “sophisticated and varied techniques.”
30-Second Summary
In a letter to the bank’s customers, SocGen Chief Executive Daniel Bouton’s wrote, “The transactions which involved the fraud were simple—taking a position on shares rising—but hidden using extremely sophisticated and varied techniques.”
On confessing to the fraud, the trader was dismissed. His direct supervisor will go as well, writes the Dow Jones MarketWatch. The BBC describes the dismissal of a number managers.
The board of directors rejected CEO Bouton’s offer to resign.
SocGen also announced a loss of €2.05 billion related to sub-prime mortgage debt. When its shares resumed trading this morning, after a brief suspension following the news, they were down 3.6 percent.
Commentators are describing this as one of the largest cases of bank fraud ever.
The comparison being made everywhere is to Nick Leeson, the rogue trader who brought down Barings Bank in 1995, having lost it around $1.4 billion. Even adjusting that figure for inflation, the SocGen fraud “dwarfs” Barings’ losses, writes MarketWatch.
On confessing to the fraud, the trader was dismissed. His direct supervisor will go as well, writes the Dow Jones MarketWatch. The BBC describes the dismissal of a number managers.
The board of directors rejected CEO Bouton’s offer to resign.
SocGen also announced a loss of €2.05 billion related to sub-prime mortgage debt. When its shares resumed trading this morning, after a brief suspension following the news, they were down 3.6 percent.
Commentators are describing this as one of the largest cases of bank fraud ever.
The comparison being made everywhere is to Nick Leeson, the rogue trader who brought down Barings Bank in 1995, having lost it around $1.4 billion. Even adjusting that figure for inflation, the SocGen fraud “dwarfs” Barings’ losses, writes MarketWatch.
Headline Links: The rogue trader at SocGen
SocGen, or Société Générale, “will need to seek €5.5 billion in new capital to offset the losses,” writes the BBC.
Source: The BBC
MarketWatch reports that the fraudulent transactions occurred in 2007 and 2008. “The socGen trader used his experience of working in the bank’s middle- and back-office to hide the huge positions he created, Boulton told investors and the media during a heated press conference,” writes MarketWatch.
Source: The BBC
Opinion & Analysis: The mood at Davos
“One thing will be discussed in Davos today: the alleged fraud by a trader at SocGen which has cost the French bank €4.9 billion,” writes the BBC’s business editor Robert Preston. Preston is in Davos, Switzerland, and says that there were rumors of something nasty in the French banking system circulating at Société Générale’s party last night.
Source: The BBC's Robert Preston
Historical Context: Nick Leeson at Barings; John Rusnak at Allfirst
Nick Leeson was a financial trader at British bank Barings, and a rising star at the institution’s Singapore offices. When his trading took a downturn, he hid his losses in a secret bank account. By the time the auditors traced that account, Leeson had lost Barings more than £800 million. Barings lost nearly all its assets, collapsed soon after, and was bought for £1 by Dutch banking and insurance group ING. Leeson was sentenced to six and a half years in prison.
Source: The BBC
In 2002, John M. Rusnak, a currency trader at the Allfirst Bank of Baltimore was arrested for hiding losses of $691 million. He was sentenced in 2003 to seven and a half years in prison and told to pay $1,000 a month for five years after his release.
Source: The New York Times
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