SocGen humbled by rogue trader scandal
( Reuters )- French bank Societe Generale faced tough questions on Friday over how it failed to spot the biggest rogue dealing fraud in history, in which a single young trader triggered a $7 billion loss under the noses of top executives.
The shaken bank organized a 5.5 billion euro ($8.06 billion) capital increase backed by its rivals, but analysts and newspapers questioned how long France's second largest bank would remain independent.
The future of bank chairman Daniel Bouton also looked uncertain following the combined blows of trading malpractice and substantial losses in the sub-prime crisis, for which the bank said it had taken a further 2.1 billion euro writedown .
Early editions of French newspapers did not make pleasant reading for SocGen bankers aiming to repair its reputation as home to some of the world's most complex rocket-science finance.
"General Irresponsibility," said left-wing Liberation above a picture of Bouton , in a play on the bank's name in French.
France's main financial daily, Les Echos , also led with a front-page picture of Bouton holding his hand in front of his mouth and commented that his position had been weakened.
"The shock which stupefied the financial world," Les Echos said in a headline, adding that the bank -- the euro zone's 7th largest by value -- was now seen as a potential takeover target.
Mystery surrounded the whereabouts of the trader who humbled one of France's oldest and most prestigious institutions.
Colleagues named him as Jerome Kerviel , 31, but SocGen declined to confirm this and said it did not know where he was.
A lawyer, Elisabeth Meyer, who said she was acting for the missing trader, said in a television interview he had not run away and would talk to French police if asked.
The Bank of France stressed SocGen was "solid" but the shock disclosure brought back memories of the collapse last decade of Britain's Barings bank because of rogue trader Nick Leeson .
France's top banker called SocGen's trader a "genius of fraud" but a senior board member at the bank called him "not one of our stars" -- leaving commentators and rivals perplexed as to whether France was looking for a whiz kid or a trading dimwit.
The bank said a junior employee on its derivatives trading desk earning less than 100,000 euros a year had carried out a sophisticated fraud, triggering 4.9 billion euros in losses as his disastrous trades were cancelled in wildly volatile markets.
SocGen made a profit of just over 5 billion euros in 2006 and has a market value of 35 billion euros, meaning it can overcome the crisis without sparking a meltdown in its stock or a run on the bank like that seen at Britain's Northern Rock.
But its credibility as an award-winning specialist in complex equity derivatives is on the line after it owned up to giant losses in one of the most straightforward instruments in global share markets -- stock index futures.
In a tacit recognition that supervision of the trader's books had gone wrong, SocGen said his immediate bosses had left the company while the trader was suspended pending dismissal.
France's prime minister said the crisis was isolated and nothing to do with the credit squeeze rocking global markets.
But it comes on top of jitters about credit losses spreading through the world's banking industry, compounded by persistent questions over the ability of banks to manage their risk.
" Societe Generale will probably not be the only case. We've seen this already with the big American banks who, by deregulating control systems, have allowed abuse," said Alain Crouzat , portfolio manager at Montsegur Finance in Paris.
" Societe Generale will certainly lose its independence after such an operation. We will ... have a redefinition of the banking world and France won't be an exception, despite what some have been saying," said Crouzat .
Bankers and analysts said the crisis could push SocGen into the arms of spurned suitor and arch-rival BNP Paribas.
BNP shares rose 7 percent on Thursday, while SocGen fell 4 percent. Its fall was cushioned by news that the emergency capital increase had already been underwritten by other banks stepping into the fray to keep a rival's balance sheet intact.
In Paris, ordinary banking customers and some of SocGen's 120,000 staff seemed bewildered by the crisis.
"What's shocking is that it's been engineered by one single person," said a Paris employee who gave only his first name, Romain . "There are a lot of procedures in place in this bank and its services. So for just one person to slip through those procedures -- I don't understand how that can happen."