French bank Societe Generale said on Thursday it has uncovered a euro 4.9 billion (US$7.14 billion) fraud "exceptional in its size and nature."
Combined with its subprime exposure, the bank said it will be forced to seek euro 5.5 billion (US$8.02 billion) in new capital. Shares in the bank were suspended on the Paris bourse.
France's second-largest bank by market value after BNP Paribas SA said it detected the fraud at its French markets division the weekend of Jan. 19. It said a trader at the futures desk had taken "massive fraudulent directional positions in 2007 and 2008 beyond his limited authority."
The trader, who was not named, used his knowledge of the group's security systems to conceal his positions through a series of elaborate fictitious transactions, a SocGen statement said. The individual confessed to the fraud, the bank said, and was being dismissed. His supervisors were to leave the group. Chief Executive Daniel Bouton offered his resignation but it was rejected by the board.
An analysis confirmed the "isolated and exceptional nature" of the fraud, the bank said.
The fraud, if confirmed, will far outstrip the Nick Leeson trading scandal in 1995 that bankrupted British bank Barings. Barings collapsed after Leeson, the bank's Singapore general manager of futures trading, lost 860 million pounds _ then worth US$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. Subprime writedowns linked to the crisis in financial markets amounted to euro2.05 billion (US$2.99 billion), Societe Generale said. As a result, the bank is planning a capital hike in the "following weeks."
The write-down and losses will lead the company to post a net profit of euro600 million to euro800 million (US$874 million to US$1.16 billion) for all of 2007, the Paris-based bank said. The French market regulator, the AMF, said it had no comment. France's Banking Federation also declined to comment. Speculation the bank would announce more subprime-related losses has hit shares in past weeks.
Trading in Societe Generale shares was suspended Thursday, a spokeswoman for Paris market operator Euronext told Dow Jones Newswires.
Shares of SocGen closed down 4.1 per cent at euro79.08 (US$115.25) on Wednesday. In the past six months it has lost nearly half of its market value.
Full-year results will be announced February 21.