Rogue trader to cost SocGen $7bn

http://news.bbc.co.uk/go/rss/-/1/hi/business/7206270.stm

Version 6 of 27.

French bank Societe Generale says it has uncovered a fraud by a Paris-based trader which resulted in a loss of 4.9bn euros ($7.1bn; £3.7bn).

It also announced new write-downs of 2.05bn euros related to the sub-prime mortgage crisis in the US.

But it said it would still make a profit of 600m to 800m euros for 2007, despite the blow to its balance sheet.

Trading in the bank's shares, which have fallen by nearly 50% in the past six months, has been suspended.

The bank, one of France's largest, will need to seek 5.5bn euros in new capital to offset the losses.

'Secret trade'

"One trader... had taken massive fraudulent directional positions in 2007 and 2008 beyond his limited authority," the bank said.

It added that the trader had confessed to the fraud and was being dismissed. His managers were to leave the bank as well.

The sheer scale of the loss is overpowering Robert Peston, BBC business editor <a class="" href="http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/01/socgen_sickness.html">Read Robert's report in full</a> "I am sorry but I have a hard time buying the fact that a trader was able to set up a 'secret trade' of 4.9 billion without anybody finding out," said Ion-Marc Valhi at Amas Bank.

Frederic Hamm, fund manager at Agilis Gestion, believes that the fraud "impacts the reputation of the bank".

Chief executive Daniel Bouton offered his resignation but it was rejected by the board, the bank said.

Richard Fuld, the chairman of Lehman Brothers, told BBC News in Davos that "nothing stuns me, nothing really surprises me these days."

Capital increase

The bank's losses have seriously dented its profits for 2007.

The company will announce its full year results on February 21, and it said that it expect its 2007 net income to be in the range of 600m-800m euros.

Societe Generale is also going to raise 5.5bn euros through a capital increase "to strengthen its capital base".

Meanwhile, another French bank, BNP Paribas, said that "it has not revealed any loss of item that would justify any particular warning to the market".