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Trader Defrauds French Bank Of $7.1 Billion

From those haters of wicked capitalists at Reuters:


Daniel Bouton, CEO of French bank Societe Generale, reacts at a news conference at the bank’s headquarters in La Defense, outside Paris, January 24, 2008.

SocGen says hit by $7.1 billion fraud

By Sudip Kar-Gupta

PARIS (Reuters) – French bank Societe Generale (SOGN.PA) said fraud by a single trader had caused it a 4.9 billion euro ($7.1 billion) loss and that it would seek emergency funds as a result, shocking battered markets.

If fraud is proved, the loss will be the biggest caused by a rogue trader, ahead of the $2.6 billion hit to Sumitomo Corp caused by copper trader Yasuo Hamanaka and the $1.4 billion loss caused to Barings by Nick Leeson, both in the 1990s. It also eclipses a $6 billion loss racked up by hedge fund Amaranth trader Brian Hunter and his team ahead of its collapse in 2006.

SocGen, France’s second-biggest listed bank, 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. It unveiled a further writedown of 2.05 billion euros related to the global credit crunch on Thursday.

The announcement sent a shiver through the world banking industry, which is suffering a credit crunch as high-risk mortgage borrowers default on their loans…

“The most serious thing is that this puts into doubt the risk management systems at some banks,” said Fortis analyst Carlos Garcia. “You can’t suddenly announce this from one day to the next a hit of $7 billion. In the light of this what we’ve done is to downgrade banks that are very linked to trading income or whose capital base is weak.”

SocGen said it was in the process of dismissing the Paris-based trader, who it did not name, and added that the trader’s managers would leave the company. Chairman Daniel Bouton later said he did not know where the trader was.

A source at SocGen said the trader was “not one of its stars” and was relatively young. SocGen said the trader had been handling futures contracts on European stock market indices, betting on broad share market movements.

It added that its board had rejected an offer by Chairman and Chief Executive Daniel Bouton to resign.

SocGen shares were suspended…

Gee, is it not possible that the news of this massive fraud had leaked out and helped to contribute to the decline in the foreign markets over the last few days?

I guess not. Or the media would have told us.

After all, why would they want to blame it all on fears of a US recession?

SocGen said it was in the process of dismissing the Paris-based trader, who it did not name, and added that the trader’s managers would leave the company. Chairman Daniel Bouton later said he did not know where the trader was.

How harsh.

I hope he doesn’t sue.

This article was posted by Steve on Thursday, January 24th, 2008. Comments are currently closed.

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