Société Générale announces massive write-down - and fraud

French bank Société Générale has announced a £1.5bn write-down related to the global credit crunch, while at the same time revealing that that a rogue trader had defrauded it of almost £3.7bn.

The board rejected a proposal by the chief executive and chairman, Daniel Bouton, to resign.

The bank is to drop its full-year net profit to between £449m and £598m, from £3.8bn – due to fraud and other losses related to sub-prime mortgages.

The bank has been forced to raise an emergency £4.1bn to shore up its distressed balance sheet.

Trading was also temporarily suspended following the announcements.

Rival bank traders were astonished that a rogue trader was able to conceal such massive losses without raising suspicion at the bank.

The Paris-based trader concealed his positions through a 'scheme of elaborate fictitious transactions'.

The trader, who has not yet been named, was in charge of 'plain vanilla' tradings, which refer to simple and straightforward securities as opposed to complex structures.

'I am sorry but I have a hard time buying the fact that a trader was able to set up a "secret trade" of £3.6bn without anybody finding out,' said Ion-Marc Valahu, head of trading at Amas Bank in Switzerland.

A Fortis analyst, Carlos Garcia, said it was serious as it put doubt into the risk management systems at some banks.

'You can't suddenly announce from one day to the next of a £3.6bn hit. 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,' said Garcia.

Further reading:

Bank of America in $5bn writedown

SocGen uncovers €5bn fraud

Societe Generale Reports Record Trading Loss of EU4.9 Billion