Questions remain over SG rogue trader

In a conference call this morning, Société Générale's chairman, Daniel Bouton, attempted to explain how the bank came to suffer losses of almost €5 billion from a single rogue trader on its equity index futures desk, but left many questions unanswered.

Bouton said the bank had been unaware of the unauthorised trades until the evening of Friday January 18, when supervisors noticed a slightly high level of counterparty risk. The unnamed trader, who worked from 2000 to 2005 in the back office before joining the trading team, had "constructed a hidden company within the trading room", Bouton explained. "Because he knew all the procedures, he was able to hide his positions with other positions that were completely fictitious. He was able to avoid all the controls we have."

The trader's motives remain a mystery. As far as SG knows, he did not profit personally from the trades. In fact, he had made several large directional trades on European equity indexes - also unauthorised - in 2007 that made significant profits, concealing them by reporting fictitious loss-making opposing trades which netted out. However, when he tried to continue this strategy in 2008, it was the real trades that lost money, Bouton said.

"For reasons of market integrity, we had to settle the positions as fast as we could," he said - in other words, starting on Monday morning, concurrently with the worldwide fall in equities that started that day. "We are not speculators. Our objective was to restore confidence in SG."

Bouton said he was confident that all the unauthorised positions had now been shut down, and added there was no evidence that the trader had not acted alone - although his supervisors will also be fired.

Both Bouton and SG CIB chief executive Jean-Paul Mustier offered their resignations after the losses became apparent, but they were refused.

See also: €4.9 billion fraud at Société Générale