SocGen's statement on $7.16 billion internal fraud

PARIS (Reuters) - Societe Generale, France's second-largest listed bank, said on Thursday it has uncovered a fraud which will have a negative impact of 4.9 billion euros ($7.16 billion) on the group.

Following is the company's announcement:

January 24, 2008 - For immediate release

Socit Gnrale Group has uncovered an exceptional fraud in a sub-section of its market activities.

The Group expects its net income for 2007 to be in the range of Euro 0.6-0.8bn, including the loss resulting from this fraud and additional US residential mortgage and monoline related write-downs. The Group intends to pay a dividend for 2007 in line with its pay-out ratio target of 45%.

As a result of this fraud and in order to strengthen its capital base, the Group will launch a capital increase of Euro 5.5bn, with preferential subscription rights, which has been fully underwritten by a bank syndicate.

Losses on a fraudulent and concealed position

Socit Gnrale Group (the "Group") has uncovered a fraud, exceptional in its size and nature: one trader, responsible for plain vanilla futures hedging on European equity market indices, had taken massive fraudulent directional positions in 2007 and 2008 beyond his limited authority.

Aided by his in-depth knowledge of the control procedures resulting from his former employment in the middle-office, he managed to conceal these positions through a scheme of elaborate fictitious transactions.

There is no residual exposure in relation to these positions, which were discovered and investigated on January 19th and 20th, 2008. It was decided to close these positions as quickly as practicable in the best interest of market integrity and the Group's shareholders. Given the combination of the size of the positions and the very unfavorable market conditions encountered, this fraud has a negative impact of Euro 4.9bn that the Group has decided to recognize in its 2007 pre-tax income.

The trader's positions have been reviewed and a thorough analysis of all his department's positions confirmed the isolated and exceptional nature of this fraud. The employee who has confessed to the fraud has been suspended and a dismissal procedure has been initiated. The individuals in charge of his supervision will leave the Group.

Additional write-downs in relation to US RMBS CDOs and monoline insurers

The Group will post additional write-downs of Euro 2.05bn in Q4 07, comprising the following:

- Euro 1.1bn in relation to US residential mortgage risk;

- Euro 550mm in relation to exposure to US monoline insurers; and

- Euro 400mm unallocated additional provision in relation to the above-mentioned exposures.