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