France’s second-largest bank, Societe Generale, has been hit with one of the biggest frauds in financial history. The bank said a rogue trader made unauthorised bets on whether European stock markets would go up or down.
According to the Bank of France, which is investigating, the 31-year-old futures trader has now fled and is on the run. Societe Generale said his fraud cost the bank almost five billion euros, it also has suffered over two billion euros of losses from its exposure to US subprime mortgages. That is a total loss of nearly seven billion euros.
As a consequence, Societe Generale’s Chief Executive, Daniel Bouton, told a news conference that the bank will have to raise 5.5 billion euros to shore up its balance sheet. He said: “This new issue of capital we’re announcing will be launched in the next few days. I believe we can count on the resoluteness of everyone working for this company to completely overcome the consequences of this absolutely exceptional fraud.”
Trying to put the best face on things, France’s central bank said Societe Generale has emerged from the crisis safer and stronger. But analyst Alain Crouzat remains worried. He said: “There are other problems already appearing in the United States, we’re going to have redraw the entire global banking landscape and France isn’t going to escape that in spite of what some are saying that the French banks have been “saved” – the French banks are not operating in isolation.”
And indeed some have speculated that there may be a link between Societe Generale’s efforts to reverse the rogue trader’s bets and Monday’s 5% fall of European stock market indexes. That was followed by the US Federal Reserve’s major interest rate cut.