Rogue trader costs SG €4.9 billion
LOSSES & LAWSUITS
PARIS - French bank Société Générale (SG) has suffered €4.9 billion in rogue trading losses in its Paris office, sparking it to issue a €5.5 billion emergency rights issue.
The rogue trade - described by SG as "isolated and exceptional" - is perhaps the largest of its type ever committed. It dwarfs Nick Leeson's $1.4 billion theft from Barings Bank in 1995.
The equity index trader, identified as 31-year-old Jérome Kerviel, took "massive fraudulent directional positions" in European equity market index futures in 2007 and 2008, "beyond his limited authority", and then concealed the positions by logging non-existent transactions, according to SG. As a former middle-office employee he was able conceal his positions easily and avoid detection for some time. He and his supervisors have been dismissed.
SG chairman Daniel Bouton first learned about the trades on January 19, he said in a letter to the bank's customers. "We have suffered a very significant loss," he wrote. "Control procedures have been revised and reinforced to avoid any reoccurrence of further similar risk."
The bank has also announced €2.05 billion in writedowns for the fourth quarter of the year, including €1.1 billion related to US mortgage risk exposure and €550 million in exposure to US monoline insurers.
SG shares have been suspended from trading on the Paris stock exchange, and on hearing the news Fitch Ratings downgraded the bank from AA to AA-. The rating agency says that the extent of the fraud raises serious questions about the effectiveness of the bank's processing systems and creates reputational risk for the group. Even with the rights issue, the bank is now at risk from a takeover.
Thomas Sheffield, technical director on Aon's directors and officers, and financial institutions team says: "New banking regulations in the EU have focused on requiring banks to develop internal methods to ensure that these risks, while perhaps still harmful, in terms of reputation for example, are not crippling to the financial institutions." That said, it would be interesting to find out whether SG's regulatory capital for operational risk under the advanced measurement approach would have covered the €4.9 billion loss.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Regulation
Banks will not be frowned upon for discount window borrowing – Fed official
Risk Live: more banks have completed paperwork to access Fed lending facility than a year ago
Capital One puts OCC’s tough stance on mergers to the test
Proposed Discover deal should be approved but will go under the microscope, ex-regulators say
As FCMs dwindle, regulators fear systemic risk
Panellists highlight dangers of clearing membership becoming more concentrated
EU banks fear green asset ratios paint an unfair picture
Industry lobbyist clashes with lawmaker over usefulness of new sustainability disclosure
EU watchdogs to launch prop trader capital review in April
Prop traders say bank-style IFR rules are driving them out, but doubt EBA will suggest changes
Investors say new SEC disclosures may sit on shelf
Advisory committee questions value of rule 605 changes, even for retail investors
CFTC hears ‘call to action’ from swaps end-users on Basel III
Commissioner Pham mulls engaging with prudential regulators over capital hit on clearing
Iosco gears up for ‘intensive work’ on AI regulation
Watchdogs risk ‘falling behind the curve’, secretary-general warns; FSB also working on guidance
Most read
- Top 10 operational risks for 2024
- As FCMs dwindle, regulators fear systemic risk
- Top 10 op risks: AI fears drive cyber risk to record high