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BDF to investigate 4.9-billion-euro fraud
Paris - France’s central bank, the Banque de France (BDF), said Thursday it would launch an investigation into a fraud by a rogue trader that cost France’s second-biggest bank, Societe Generale, 4.9 billion euros (7.1 billion dollars).
“The Banque de France was immediately informed of the discovery of this embezzlement and its consequences,” the BDF said in a statement, adding that the investigation would look into “the conditions in which the fraud occurred.”
Earlier Thursday, Societe Generale said it had discovered what it described as “a fraud exceptional in size and nature.”
“One trader, responsible for plain vanilla futures hedging on European market indices, had taken massive fraudulent directional positions in 2007 and 2008 beyond his limited authority,” the bank said in a press statement. “He managed to conceal these positions through a scheme of elaborate fictitious transactions.”
The affair is akin to what led to the collapse of Britain’s Barings Bank, which went out of business in 1995 because a 28-year- old trader named Nick Leeson had taken unauthorized speculative positions primarily in futures linked to the Nikkei 225 and Japanese government bonds.
However, Societe Generale head Daniel Bouton told journalists in Paris that the bank’s financial situation had been “restored” and that “trust (in the institution) has not been shaken.”
But the French investment house Aurel said that if the bank’s share price continued to fall “it could be vulnerable to a takeover by one of its competitors.”
Trading in the bank’s shares was suspended for several hours early Thursday on the Paris Bourse. In mid-afternoon trading, the stock was down by nearly 5 per cent, selling for 75.30 euros.
Bouton also apologised to Societe Generale shareholders and said that he and the bank’s general director, Philippe Citerne, would renounce their salaries for the first six months of 2008.
He said that the 30-year-old trader, who he said was authorized only to trade in small amounts, “had created a hidden company within the group ... and had the intelligence to avoid all supervisory procedures.”
Bouton also said that the whereabouts of the trader were not known, but that a complaint against him would be filed with prosecutors.
Societe General said it would launch a capital increase of 5.5 billion euros as a result of the loss.
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