SocGen Reels from Record $7 Bln Rogue Trader Fraud
PARIS (Reuters) - A junior computer whiz at French bank Societe Generale (SOGN.PA) was accused of racking up a $7 billion loss in bad bets on stocks in the biggest trading scandal in banking history.
France's central bank and government scrambled to shore up confidence in the banking system after the 144-year-old SocGen told investors already battered by the credit crisis that it discovered the "exceptional" fraud late last week.
The trader had circumvented the bank's risk controls through in-depth knowledge of its computer systems, but was caught when he tried to cover up his losses.
The country's central bank chief dubbed the trader "a genius of fraud" while French police announced a criminal probe.
Richard Fuld, the chief of Wall Street firm Lehman Brothers LEH.N, called the debacle "everyone's worst nightmare" at the meeting of policy and business leaders in Davos.
The losses spiraled to 4.9 billion euros ($7.1 billion) -- nearly its net profit in 2006 -- as the bank tried to close out the rogue trader's stock index futures positions in Monday's sliding market.
"We get the feeling that the financial markets have become a big casino which has lost control. It seems incredible that the Societe Generale can lose 5 billion through one operator," said Alain Crouzat, a portfolio manager at Montsegur Finance.
SocGen declined to identify the trader, but three SocGen sources named him as Jerome Kerviel, 31, a trader on the bank's award-winning equity derivatives desk earning less than 100,000 euros a year.
A head shot of Kerviel cut from a trading Web site showed an earnest-looking young man. When his identity was revealed in the afternoon, he had 11 friends listed on the facebook.com social Web site. That number later dropped to four. Kerviel was not available for comment.
"He is not running away. He is at the disposal of the police," said Elisabeth Meyer, a woman who claimed to be his lawyer, on French TV.
The loss ranks as the biggest caused by a single trader, dwarfing the $1.4 billion loss by trader Nick Leeson that broke British bank Barings, and the $2.6 billion Sumitomo Corp lost in rogue copper trades in the 1990s.
It also eclipses a $6 billion-plus loss racked up by hedge fund Amaranth trader Brian Hunter and his team ahead of the fund's collapse in 2006.
A SHOCKER
News of the fraud hit the company's Manhattan office like a bombshell, said a SocGen banker who didn't want his name used.
"It makes us look incompetent, which isn't the case," the banker told Reuters. "We're all wondering if this fraud will wreck the company." Continued...
