Société Générale hit by €4.9 billion crime

[Al-khiyal]

Société Générale hit by €4.9 billion crime

January 24, 2008 -- French bank Société Générale has revealed that it has been hit by one of the biggest alleged cases of fraud in banking history. The bank discovered that fraud by one of its traders had led to losses of €4.9 billion.

In a week of stock market jitters, massive fraud at one of France's biggest banks has added to the financial sector's woes. Société Générale announced Thursday that it had been victim of €4.9 billion ($7.14 billion) fraud, "exceptional in its size and nature." Combined with its exposure in the subprime crisis, the bank, France's second largest, will be forced to seek €5.5 billion in new capital.

On Saturday the bank discovered that one of its employees had taken "massive fraudulent directional positions in 2007 and 2008 beyond his limited authority." The unnamed trader, who has since been given his marching orders, used his knowledge of the bank's security systems to cover his tracks through a series of fictituous transactions, the bank announced. Shares of the bank were suspended on Thursday.

The trader, who a source at Société Générale told Reuters was "not one of its stars" and was relatively young, had been handling futures contracts and betting on broad share market movements. His managers are also to lose their jobs. Chairman and CEO Daniel Bouton offered to resign but the board rejected the offer.

The fraud has echoes of the Nick Lesson trading scandal in 1995 that brought down Barings Bank, a company that had been in business for 230 years, after the Singapore-based dealer lost 860 million pounds (then worth $1.38 billion) on Asian futures markets.

The Bank of France announced Thursday that the Banking Commission would be holding an inquiry into the Société Générale case and French Economy Minister Christine Lagarde is expected to make a statement later in the day.

On Thursday the bank also announced writedowns of €2.05 billion related to effects from the US subprime mortgage crisis. It said on it was still expecting to see a profit for 2007, but probably only between €600 million and €800 million - in stark contrast to the €5.221 billion profits it posted in 2006.

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Jerome Kerviel behind Société Générale fraud

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La banque française Société Générale perd 7 milliards d’euros :
Quelles conséquences sur l’Algérie ?

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La Banque de France diligente une enquête

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Gérald Lacaze (PDG de Société Générale Algérie) :
« Aucun impact à signaler sur nos activités »

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Rogue French trader taken in for questioning in fraud probe at French bank Societe Generale

PARIS, January 26, 2008 (AP) - A rogue trader who cost France's Societe Generale bank more than $7 billion by making bad stock market bets was taken into custody on Saturday for questioning, judicial officials said.

Financial police in Paris were to question Jerome Kerviel as part of a probe into Societe Generale's announcement Thursday that the 31-year-old trader had put tens of billions of dollars at risk in one of history's biggest frauds, judicial officials said. They spoke on condition of anonymity because the investigation is ongoing.

Skeptics from Kerviel's neighbors to France's prime minister have questioned whether a single futures trader could have managed such large sums. Adding to the mystery, the bank said Kerviel may not have made any personal gain from his unauthorized trades.

The bank said it discovered the fraud last weekend and unwound the trader's losing bets starting Monday, when world markets tumbled. Some analysts have questioned whether Societe Generale exacerbated the fall and indirectly led to the U.S. Federal Reserve's subsequent decision to cut rates.

Judicial officials also confirmed police searched Kerviel's apartment in the Paris suburb of Neuilly-sur-Seine. They said police also went Friday night to the bank's headquarters, where they were provided with documents relating to the investigation, officials said.

Paris prosecutors are conducting a preliminary investigation based on three complaints: one by the bank accusing Kerviel of fraud, and two by small shareholders.

In an interview published Saturday, Societe Generale's chief executive, Daniel Bouton, insisted the bank's actions after discovering the fraud did not fuel turmoil on world markets.

''It's absurd!'' Bouton said of the suggestion, in an interview with Le Figaro daily. ''Anyone could calculate our contribution to the market in recent days.''

Bouton was quoted as saying the bank, in closing the trader's unauthorized positions, respected market rules that forbid any player from intervening with sums worth more than 10 percent of a given market. The bank says that is why it took three days to close the positions.

The bank maintains it was the biggest loser in the case, because of the timing of the discovery.

Kerviel had been investing the bank's money by hedging on European equity market indices. That means he made bets on how the markets would perform at a future date.

Bouton said the trader had been betting throughout 2007 that markets would fall. ''He was therefore winning, virtually,'' he said.

But the bank says he had overstepped his authority and was wagering more money than he should have.

So at the beginning of January, Bouton said, the trader voluntarily created losing positions, to neutralize his earlier gains and cover his tracks.

But markets dropped this month, and fast. ''This sad affair veered into a Greek tragedy: His virtual losing position became huge,'' Bouton was quoted as saying.

The bank's systems discovered an anomaly on January 18, he said. On Sunday, the full scale of the problem was revealed to the bank's management - ''enormous and totally abnormal,'' Bouton said.

''I decided ... to close the positions and alert the supervisory authorities,'' he said.

When Asian and European markets collapsed Monday, ''that had a catastrophic effect. The losses of Societe Generale became even more enormous,'' he was quoted as saying.

Ultimately it took three days to close the positions, and the bank lost $7.2 billion.

Bouton said the overall health of the bank was not at risk, comparing the situation to arson at a factory of a big manufacturer - a devastating, but one-time, loss.

French presidential aide Raymond Soubie said the trader had been dealing with more than $73.3 billion. That figure outstrips the bank's market capitalization of $52.6 billion, and is close to the annual GDP of entire nations such Slovakia, Qatar or Libya.

It remains unclear whether Kerviel's actions, if proved, were out of malevolence, ambition or some other reason. Three union officials representing Societe Generale employees said managers at the bank who briefed them about the fraud told them Kerviel was having family problems.

The debacle generated buzz at the World Economic Forum in Davos, Switzerland, and raised questions sector-wide about risk management.

French Finance Minister Christine Lagarde, speaking Saturday in Davos, said she has been asked to compile a report on the fraud, Dow Jones Newswires reported.

Lagarde said her report will look at ''the reality of facts based on real hard data,'' and ''how and why the controls did not work'' to prevent the fraud. Lagarde said the report, whose results are to be made public, will address ''what additional controls should be put in place to stop it happening again,'' Dow Jones said.

Societe Generale's shares have lost nearly half their value over the past six months. After an up-and-down day Friday, the shares closed down 2.5 percent at $108.62.

The company, which also posted another $2.99 billion subprime-related loss, planned to raise $8.02 billion in new capital.

[Al-khiyal]

Gérald Lacaze (PDG de Société Générale Algérie) :
« Aucun impact à signaler sur nos activités »

Société Générale Algérie :
Les clients se disent rassurés

Lundi 28 janvier 2008 -- Les clients de Société Générale Algérie ont réagi avec sérénité à l’annonce de la fraude dont a été victime la maison mère en France. La ruée irrationnelle des clients de Société Générale Algérie (SGA) n’a pas eu lieu. Les agences n’ont pas été prises d’assaut et la reprise, après un week-end riche en informations fusant de partout sur la fraude dont a été victime la banque française dans l’Hexagone, a été des plus ordinaires.

« La journée a été entièrement normale », résume le directeur d’une agence à Alger-centre, lui-même complètement rassuré : « Je ne vois pas de rapport entre notre activité et ce qui s’est passé en France. Ce sont deux choses différentes et les gens n’ont pas de raison de s’inquiéter », dira-t-il. « Moi, la banque me sert pour le quotidien, je n’y ai pas des millions, ce n’est vraiment pas à mon niveau qu’une telle fraude risque d’avoir des conséquences. C’est clair que je vais suivre l’affaire tout en étant rassuré », lance un client quadragénaire un peu railleur. « Ces pertes, c’est de la haute finance. Cela n’a rien à voir avec mon compte », estime un autre client algérois à la SGA et qui entend bien le rester.

Comme lui, le gros des clients a réagi avec sérénité. « Les clients ne risquent rien, rappelle-t-il, puisque la fraude s’est produite dans un contexte spécifique au marché français ». Pour lui, la fraude est un événement tout à fait exceptionnel qui peut arriver à n’importe quelle banque un jour ou l’autre en dépit des systèmes de surveillance. « Cela n’a absolument rien à voir avec la sinistralité liée aux risques qu’une banque peut prendre », ajoute-t-il. Tout en niant avoir constaté un quelconque retentissement sur les clients, tous les particuliers interrogés se disent rassurés : « Pour nous, la vie n’a pas changé, la confiance n’est pas entamée et on continue comme avant ».

Rappelons que le président du directoire de Société Générale Algérie, Gérald Lacaze, a affirmé vendredi dernier dans un entretien à El Watan que la fraude dont a été victime le groupe n’a aucune incidence sur la filiale Société Générale Algérie. « Je dois dire que l’affaire qui a été révélée jeudi en France est énorme mais n’a aucun impact sur notre activité ici en Algérie », a rassuré le PDG. « Notre activité est saine et profitable. Notre banque se développe en Algérie de manière autonome et ce qui s’est passé en France ne peut avoir d’incidence sur Société Générale Algérie, en ce sens que cela concerne une activité très spécifique au marché français. Ce genre de fraude n’a aucun risque de se produire en Algérie. La banque a aujourd’hui un réseau de 37 agences, enregistre des résultats profitables et nous comptons même renforcer nos capacités en doublant prochainement notre capital », a-t-il ajouté.