PARIS - The rogue futures trader who cost French bank Societe Generale $7.14 billion had been betting on a much larger scale _ with tens of billions in fraudulent deals, the bank said Friday. bet
France's No. 2 bank apologized to shareholders after discovering what appears to be the biggest-ever trading fraud carried out by a single person. The news Thursday rattled an already jittery banking sector at a time of global economic uncertainty.
The scale of the alleged fraud grew clearer Friday, when a bank official said 31-year-old trader Jerome Kerviel's positions had reached "several tens of billions of euros" _ a staggering sum for a bank whose market capitalization is 35.9 billion euros ($52.6 billion). The official spoke on condition of anonymity in line with bank policy on such matters.
The bank said Kerviel appears to have netted no personal financial gain from the alleged schemes.
The bank's CEO took out newspaper ads Friday begging shareholders to accept his "apologies and deep regrets."
"I understand your disappointment, your anger," Chief Executive Daniel Bouton wrote in the full-page advertisements. "This situation is perfectly unacceptable."
Societe Generale's shares, which have lost nearly half their value over the past six months, were suspended on the Paris bourse Thursday morning. When trading resumed, shares fell 4.13 percent to close at 75.81 euros ($111.16). Friday morning, shares were trading up 0.15 percent at 75.93 euros ($111.34).
On Friday, UBS downgraded the bank to neutral from buy. Deutsche Bank also downgraded the stock, to hold from buy.
Undetected by the bank's multilayered security systems, Kerviel had for over a year been fraudulently using the company's funds to bet on European stock markets, Societe Generale said.
The bank said it learned of the fraud last weekend. With money markets in turmoil, Societe Generale was forced to sell the contracts built up by the rogue trader just as stocks were plunging. It took three days to unload them.
During a visit to India, President Nicolas Sarkozy said the bank's problem "is an internal fraud that had consequences on Societe Generale's results but, as the governor of the Bank of France says, has not affected the solidity and reliability of the French financial system."
Sarkozy said he will announce new proposals at a Tuesday dinner in London with other European leaders on how to boost transparency in the financial sector and encourage the "moral improvement of financial capitalism."
With questions swirling over how an individual could rack up $7.14 billion in losses for a company, the Bank of France governor insisted Friday the sum had "nothing to do with the subprime crisis, with the difficulties of the financial market in general."
On RTL radio, Christian Noyer said the vast loss was just "chance."
"If there hadn't been a collapse in the markets early in the week, the size of the loss would have been much smaller," he said.
Societe Generale filed a legal complaint Thursday accusing the trader of fraudulent falsification of banking records, use of such records and computer fraud. Elisabeth Meyer, Kerviel's lawyer, said on French television network BFM that her client "is not fleeing" and is "available for judicial authorities." She would not say, however, where Kerviel is.
Many questions remain as to how and why Kerviel perpetrated what the bank described as fraud "exceptional in its size and nature." It remains unclear whether he was acting out of malevolence, ambition or some other reason. Three union officials representing Societe Generale employees said managers at the bank who briefed them about the fraud told them Kerviel was having "family problems."
Employed by Societe General since 2000, Kerviel worked his way up from a supporting role in an office that monitors trades to a job on the more glamorous futures desk where he invested the bank's own money by hedging on European equity market indices. That means he made bets on how the markets would perform at a future date.
Thierry Mavic, mayor of the western French town of Pont-L'Abbe where Kerviel grew up, described him as "someone with his head on his shoulders, thoughtful, a young man with no issues," in an interview with RTL.
Kerviel both shocked and impressed executives with the complexity and scale of his trades. Using his knowledge of Societe Generale's control systems, gleaned in his former monitoring role, he escaped detection. Most of his positions went unnoticed by colleagues and superiors as Kerviel covered his tracks.
Kerviel's deception recalls the massive fraud carried out by Nick Leeson, who in 1995 bankrupted British bank Barings. Barings collapsed after Leeson, the bank's Singapore general manager of futures trading, lost 860 million pounds _ then worth $1.38 billion _ on Asian futures markets, wiping out the bank's cash reserves. The company had been in business for more than 230 years.
Though Societe Generale's loss is greater than Barings', Bouton insisted that the bank is financially sound and that the bank would "bounce back."
The company expects to post a net profit of 600 million euros to 800 million euros ($874 million to $1.16 billion) for all of 2007 _ even after the fraud and another 2.05 billion euros ($2.99 billion) lost in the subprime mortgage crisis that has roiled markets.
As a result, the bank said it would be forced to raise 5.5 billion euros ($8.02 billion) in new capital.
Founded in 1864 after a decree signed by Napoleon III, Societe Generale is now present in 77 countries and employs 120,000 people.
Societe Generale Apologizes Over Fraud - Yahoo! Singapore News