Don't know if this is a repost..colin powell will show up. But how the fuck did a mid-level trader pull this off (7 Billion dollar fraud. I'm not buying this shit..they can't be this incompetent)
http://www.iht.com/articles/2008/01/24/business/socgen.php
By David Jolly
Thursday, January 24, 2008
PARIS: The French bank Soci�t� G�n�rale said Thursday that it had uncovered "an exceptional fraud" by a trader that would cost it �4.9 billion, and that it was raising about �5.5 billion in new capital to shore up its finances.
The company, one of the biggest banks in France, said in a statement that the fraud, equivalent to about $7.1 billion, had been committed by a trader in charge of "plain vanilla" hedging on European index futures.
The trader "had taken massive fraudulent directional positions in 2007 and 2008 far beyond his limited authority," the bank said. "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."
During a conference call, the Soci�t� G�n�rale chairman and chief executive, Daniel Bouton, said the bank had started legal proceedings against the rogue trader, whom he did not identify for legal reasons; he also said the trader's whereabouts were unknown.
Bouton said the trader was "in his thirties," and had been working at the bank since 2002. He had been earning a little less than �100,000 a year, he said.
The trader's actions were found to be a case of "isolated fraud," the bank said, and officials said they were convinced the trader had acted alone.
Soci�t� G�n�rale shares, which had been suspended for most of the morning on the Paris bourse, fell 4.5 percent after the resumption of trading Thursday.
"The most serious thing is that this puts into doubt the risk management systems at some banks," Carlos Garcia, an analyst at Fortis, told Reuters. "You can't suddenly announce this from one day to the next a hit of $7 billion. In the light of this, what we've done is to downgrade banks that are very linked to trading income or whose capital base is weak."
Soci�t� G�n�rale also said Thursday that it would write off �2.05 billion of its U.S. exposure in the fourth quarter, including �1.1 billion related to the housing market and �550 million related to U.S. bond insurance companies. It said it was setting aside an additional �400 million in provisions against the risk that losses in those two areas would grow.
In a letter to Soci�t� G�n�rale employees, Bouton said that before the discovery of the fraud, he had been preparing to announce 2007 pretax profit of �5.5 billion, and that the fact that the bank was doing so well in spite of market volatility "demonstrates our capacity to absorb a very grave crisis."
Over the weekend, "under conditions of extreme market volatility," Bouton said, fraud "of an unprecedented size was discovered." Market conditions being what they were, "it was imperative that the enormous position that he had built and hidden be closed out as rapidly as possible."
There was some skepticism in the market about the fraud disclosure.
"I am sorry but I have a hard time buying the fact that a trader was able to set up a 'secret trade' of �4.9 billion without anybody finding out," Ion-Marc Valahu, head of trading at Amas Bank in Switzerland, told Reuters.
In a letter to clients, Bouton described the rogue trader as "an imprudent employee in the corporate and investment banking division." He said the supervisors of the trader were being fired and that controls "have been revised and reinforced to avoid any reoccurrence of further similar risk."
He also sought to reassure customers that they would not suffer from the losses, as "the capital increase is fully guaranteed, and will offset the loss generated by the fraud."
The bank said its board of directors had rejected an offer by Bouton to resign, and had given him a renewed vote of confidence. But Bouton said he and his deputy, Philippe Citerne, would give up their salaries until June 30 to take responsibility for the losses.
To reinforce its capital, the bank said its board had decided to raise �5.5 billion via a rights issue of preferred shares to investors, underwritten by JPMorgan Chase and Morgan Stanley. The rights issue, the bank said, would bring its Tier 1 capital ratio to 8 percent.
Despite the setbacks, Soci�t� G�n�rale said it would still post a profit for 2007 of �600 million to �800 million, and that it would pay out 45 percent of its profit in dividends.
The scandal has the potential to be the largest such trading fraud ever, though it is just the latest in a long history of such incidents. Cr�dit Agricole, a French rival, said in September it would have to take a �250 million charge related to an unauthorized trading position.
In 1995, Nick Leeson, a trader in Singapore, incurred a loss of $1.8 billion by making $27 billion of bad bets on Japanese markets, bringing down the venerable British bank Barings in the process.
In 1998, Yasuo Hamanaka, once the chief copper trader at Sumitomo Corp., was sentenced to eight years in prison after pleading guilty to hiding $2.6 billion in trading losses. He admitted to lying and forging documents as his losses snowballed while he bought a million tons of copper over a decade in a bid to sustain prices.
The Bank of France, the country's central bank, said it had been informed of the situation, and that "a banking commission inquiry will be undertaken to examine the conditions in which the fraud occurred."
Bouton said he had alerted the Bank of France and the AMF, the French stock market watchdog, to the fraud Sunday.
"There is no reaction from the European Commission," said Oliver Drewes, an EU executive spokesman, Bloomberg News reported from Brussels. "This is a matter for the national authorities in France to look at."
To some, the recent financial shocks have highlighted regulatory deficits in major financial centers. Britain, for example, has taken a "light touch" approach where banks are regulated by the Financial Services Authority, an nongovernmental body.
But the near collapse and possible nationalization of the troubled British mortgage lender Northern Rock has brought that model into question there.
Matthew Saltmarsh contributed reporting for this article.
http://www.iht.com/articles/2008/01/24/business/socgen.php
By David Jolly
Thursday, January 24, 2008
PARIS: The French bank Soci�t� G�n�rale said Thursday that it had uncovered "an exceptional fraud" by a trader that would cost it �4.9 billion, and that it was raising about �5.5 billion in new capital to shore up its finances.
The company, one of the biggest banks in France, said in a statement that the fraud, equivalent to about $7.1 billion, had been committed by a trader in charge of "plain vanilla" hedging on European index futures.
The trader "had taken massive fraudulent directional positions in 2007 and 2008 far beyond his limited authority," the bank said. "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."
During a conference call, the Soci�t� G�n�rale chairman and chief executive, Daniel Bouton, said the bank had started legal proceedings against the rogue trader, whom he did not identify for legal reasons; he also said the trader's whereabouts were unknown.
Bouton said the trader was "in his thirties," and had been working at the bank since 2002. He had been earning a little less than �100,000 a year, he said.
The trader's actions were found to be a case of "isolated fraud," the bank said, and officials said they were convinced the trader had acted alone.
Soci�t� G�n�rale shares, which had been suspended for most of the morning on the Paris bourse, fell 4.5 percent after the resumption of trading Thursday.
"The most serious thing is that this puts into doubt the risk management systems at some banks," Carlos Garcia, an analyst at Fortis, told Reuters. "You can't suddenly announce this from one day to the next a hit of $7 billion. In the light of this, what we've done is to downgrade banks that are very linked to trading income or whose capital base is weak."
Soci�t� G�n�rale also said Thursday that it would write off �2.05 billion of its U.S. exposure in the fourth quarter, including �1.1 billion related to the housing market and �550 million related to U.S. bond insurance companies. It said it was setting aside an additional �400 million in provisions against the risk that losses in those two areas would grow.
In a letter to Soci�t� G�n�rale employees, Bouton said that before the discovery of the fraud, he had been preparing to announce 2007 pretax profit of �5.5 billion, and that the fact that the bank was doing so well in spite of market volatility "demonstrates our capacity to absorb a very grave crisis."
Over the weekend, "under conditions of extreme market volatility," Bouton said, fraud "of an unprecedented size was discovered." Market conditions being what they were, "it was imperative that the enormous position that he had built and hidden be closed out as rapidly as possible."
There was some skepticism in the market about the fraud disclosure.
"I am sorry but I have a hard time buying the fact that a trader was able to set up a 'secret trade' of �4.9 billion without anybody finding out," Ion-Marc Valahu, head of trading at Amas Bank in Switzerland, told Reuters.
In a letter to clients, Bouton described the rogue trader as "an imprudent employee in the corporate and investment banking division." He said the supervisors of the trader were being fired and that controls "have been revised and reinforced to avoid any reoccurrence of further similar risk."
He also sought to reassure customers that they would not suffer from the losses, as "the capital increase is fully guaranteed, and will offset the loss generated by the fraud."
The bank said its board of directors had rejected an offer by Bouton to resign, and had given him a renewed vote of confidence. But Bouton said he and his deputy, Philippe Citerne, would give up their salaries until June 30 to take responsibility for the losses.
To reinforce its capital, the bank said its board had decided to raise �5.5 billion via a rights issue of preferred shares to investors, underwritten by JPMorgan Chase and Morgan Stanley. The rights issue, the bank said, would bring its Tier 1 capital ratio to 8 percent.
Despite the setbacks, Soci�t� G�n�rale said it would still post a profit for 2007 of �600 million to �800 million, and that it would pay out 45 percent of its profit in dividends.
The scandal has the potential to be the largest such trading fraud ever, though it is just the latest in a long history of such incidents. Cr�dit Agricole, a French rival, said in September it would have to take a �250 million charge related to an unauthorized trading position.
In 1995, Nick Leeson, a trader in Singapore, incurred a loss of $1.8 billion by making $27 billion of bad bets on Japanese markets, bringing down the venerable British bank Barings in the process.
In 1998, Yasuo Hamanaka, once the chief copper trader at Sumitomo Corp., was sentenced to eight years in prison after pleading guilty to hiding $2.6 billion in trading losses. He admitted to lying and forging documents as his losses snowballed while he bought a million tons of copper over a decade in a bid to sustain prices.
The Bank of France, the country's central bank, said it had been informed of the situation, and that "a banking commission inquiry will be undertaken to examine the conditions in which the fraud occurred."
Bouton said he had alerted the Bank of France and the AMF, the French stock market watchdog, to the fraud Sunday.
"There is no reaction from the European Commission," said Oliver Drewes, an EU executive spokesman, Bloomberg News reported from Brussels. "This is a matter for the national authorities in France to look at."
To some, the recent financial shocks have highlighted regulatory deficits in major financial centers. Britain, for example, has taken a "light touch" approach where banks are regulated by the Financial Services Authority, an nongovernmental body.
But the near collapse and possible nationalization of the troubled British mortgage lender Northern Rock has brought that model into question there.
Matthew Saltmarsh contributed reporting for this article.
