Trader Was Dealing in Tens of Billions

Jan 26, 11:14 PM

PARIS (AP) - The rogue futures trader who allegedly cost French bank Societe Generale $7.14 billion had been betting on an even larger scale - with tens of billions in fraudulent deals, the bank said Friday.

France's No. 2 bank apologized to shareholders after discovering what appears to be the largest trading fraud in history to be carried out by a single person. The news Thursday rattled an already jittery banking sector at a time of global economic uncertainty.

A bank official said Friday that 31-year-old trader Jerome Kerviel's positions had reached "several tens of billions of euros" - a staggering sum for a bank with a market capitalization of 35.9 billion euros ($52.6 billion). The official spoke on condition of anonymity in line with bank policy.

French presidential aide Raymond Soubie said on LCI television that the trader had been dealing with more than 50 billion euros ($73.31 billion) - a figure greater than annual gross domestic product for entire nations such as Morocco, Bangladesh, Vietnam and Slovakia, according to 2006 IMF figures.

The bank said Kerviel appears to have netted no personal financial gain from the alleged schemes.

Paris prosecutors were conducting a preliminary investigation that combines two legal complaints, judicial officials said: one by Societe Generale accusing the trader of fraud, another by small shareholders in the bank demanding to know how the fraud transpired.

Societe Generale's shares, which have lost nearly half their value over the past six months, were suspended on the Paris bourse Thursday morning. When trading resumed, shares fell 4.13 percent to close at 75.81 euros ($111.16). Friday afternoon, shares were trading up 2.4 percent at 77.66 euros ($113.87).

On Friday, UBS downgraded the bank to neutral from buy. Deutsche Bank also downgraded the stock, to hold from buy.

However, Dresdner Kleinwort analysts Milan Gudka and Arturo De Frias said the bank's announcement "provides us with greater visibility and comfort. Despite our concern as to the adequacy of internal controls, we keep a positive recommendation on the stock."

Undetected by the bank's multilayered security systems, Kerviel had for over a year been fraudulently using the company's funds to bet on European stock markets, Societe Generale said.

The bank said it learned of the fraud last weekend. With money markets in turmoil, Societe Generale was forced to sell the contracts built up by the rogue trader just as stocks were plunging. It took three days to unload them.

During a visit to India, President Nicolas Sarkozy said the bank's problem "is an internal fraud that had consequences on Societe Generale's results but, as the governor of the Bank of France says, has not affected the solidity and reliability of the French financial system."

Sarkozy said he will announce new proposals at a Tuesday dinner in London with other European leaders on how to boost transparency in the financial sector and encourage the "moral improvement of financial capitalism."

(c) 2008 Telegraph - Herald (Dubuque). Provided by ProQuest Information and Learning. All rights Reserved. Trader Was Dealing in Tens of Billions
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