In what could be the world’s biggest financial fraud, French bank Societe Generale on Thursday announced that one of its traders has run up losses worth euro 4.9 billion (Rs 28,200 crore), forcing the bank to raise more capital.
Societe Generale said in a statement that the trader, who was not named, used his knowledge gained while working in a different segment of the bank to bypass control procedures and hide his trades from his bosses.
It was not immediately clear what impact the fraud would have on Soc-Gen’s operations in India, where it’s a joint venture partner in the mutual fund business of SBI and has also signed a deal with India Bulls to enter life insurance.
The fraud brought back memories of the Nick Leeson trading scandal in 1995, which caused British bank Barings’s collapse. Leeson, then Barings’s general manager for futures trading in Singapore, ran up a loss of US $ 1.4 billion. After six years in jail, he is now settled in Ireland.
Soc-Gen, France’s second largest bank with operations in 80 countries, said it has simultaneously run up losses of euro 2 billion due to its exposure to bad housing loans in the US market. The double whammy has forced the bank to seek euro 5.5 billion (Rs 31,700 crore) in new capital.
On the fraud, Daniel Boulton, the bank’s chairman, said: “The transactions which involved the fraud were simple — taking a position on shares rising — but hidden using extremely sophisticated and varied techniques.”
The trader has been suspended and will be sacked and his supervisors have also agreed to quit, he said.
A Soc-Gen spokesperson told the Hindustan Times that there is no information whether the identity of the trader may be announced soon.
Meanwhile, Nick Leeson, who is now an owner of a football team and a popular after-dinner speaker, told news agency AFP that he was not surprised by such an incident. Incidentally, he is traveling to France on a holiday with his second wife on Friday.
An AFP report said around 100 shareholders of Societe Generale have filed a suit seeking damages for the losses as trading in the bank's stock was suspended on Thursday.
Societe Generale may just survive the scare. While it has suffered losses, its effort to raise fresh capital got underwritten by Wednesday and two investment banks, JP Morgan and Morgan Stanley, are supporting it. The bank has also said it would record a profit for the year 2007 and also stick to its plan of announcing a 45 per cent dividend.