DO NOT READ THIS OF YOU ARE IN THE UNITED STATES, CANADA, JAPAN OR AUSTRALIA1.
Soc Gen have had a bad quarter, but not a bad year. Unlike several other banks reporting losses this quarter, they are not declaring a loss for the full year – but they do have an additional source of pain – a rogue trader2, losing EUR4.9bn. Apparently this one got away with it as he was formerly in the middle office and had an “…in-depth knowledge of the control procedures…”. Guys – it should not matter how well you know the control procedures, they should be designed to work in any case. I have a feeling this one will run for a while. The point here is that a position should be noticed, no matter what, long before it gets to a value in the billions, never mind a loss in the billions.
My guess is that he did a Nick Leeson – put the positions in as
counterparty positions rather than prop (bank) ones. Still the cash to
fund the positions should have shown up. As he was forex my guess is that he was betting against the euro – the biggest losing bet around in a liquid currency (update – corrected in comments below).
Like most of these frauds, I would guess the auditors will be both asking a lot of question and be asked a lot of questions. Luckily, they seem to have two audit firms in there – I presume this is French law. That must be fun for the employees having to deal with them.
As a side note – it looks like the BBC has got the wrong end of the stick – their report (as it stands now) says that it was all lost in one trade. This is not correct according to the Soc Gen press release.
They are going to market for EUR 5.5 bn to make up some capital losses. I presume this is to cover for growth in the business and a re-rating of the risk of their trading portfolio.
.
1. OK – that made you look. The press release from Soc Gen has this
all over it. Just shows how ridiculous these restrictions are.
2. (UPDATE) Looks like SocGen has disabled access to the release. I have
removed the link. The Economist link lower down the post is much more
interesting anyway.
9 comments
25 January, 2008 at 17:11
johan steunenberg
Hi,
the link to SocGen does not give me an info about the incident. Did they remove the notice?
//Johan
25 January, 2008 at 17:26
Andrew
Thanks, Johan – looks like they have. My guess is that they have blocked access to it from the countries at the top of the post for legal reasons.
If anyone else who is not in one of the countries identified could check it I would appreciate it.
Those restrictions are just plain silly.
25 January, 2008 at 17:34
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25 January, 2008 at 17:37
johan steunenberg
I’m in Germany.
By the way, you mention it was a forex dealer. Reuters says he was working on the derivatives desk, the Financial Times Germany say he was trading futures on shares. Was the forex mentioned in the SocGen press release?
//Johan
25 January, 2008 at 17:46
Andrew
Johan,
OK – I will remove the link. I have also updated the post as the result of reading The Economist on this. Thanks for the correction.
25 January, 2008 at 18:01
johan steunenberg
:-) I just returned from the economist myself. The link they provide is gone now too.
And: thanks for your article. It made me think on the start of this german day.
25 January, 2008 at 22:53
Tom
He’s not a forex trader… He worked on the equity derivatives desk (future contracts).
30 January, 2008 at 20:04
Martin Davies
Yes I believe Tom is right, from what I understand he was going long on CFDs (Contracts for Difference) an equity derivative however it might have also had currency exposures.
31 January, 2008 at 09:34
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