Fraud hits French banking giant

Last Modified: 24 Jan 2008
By: Katie Razzall

France's second biggest bank has been left reeling after a junior trader lost more than £3.5bn in fraudulent trading.

Societe Generale had a blue-chip reputation for risk management, but the news left its credibility in tatters.

The fraud was discovered late last week, just as the global markets were in free-fall, making the bank's losses even worse.

This French trader has made Nick Leeson's assault on Barings Bank look like peanuts.

He has been named in the Financial Times as 31-year-old Jerome Kerviel. He was brought to book by his employers on Saturday.

He has been accused by France's second largest bank, Societe Generale, of "exceptional" fraud. He's lost them £3.7bn, more than double what the credit crunch and sub-prime problems have cost them.

Daniel Bouton, Societe Generale's chief executive said: "Last Saturday, we discovered the existence of a concealed activity, totally hidden, outside of our books, but within the frame of our market activities. It was of an enormous size and was running considerable risks to the bank."

But how did a junior trader who bet on stock markets rising and earned a £70,000 salary circumvent his banks internal controls for more than a year?

Societe Generale says he was working alone and not for direct personal gain.

He gambled more and more to counter his losses and concealed them by creating records of fraudulent, non-existent gains.

Kerviel had previously worked in the part of the bank that keeps an eye on fraudulent activity, so he knew how to get round the control systems.

In what Societe Generale called an "extraordinary stroke of bad luck", it chose Monday to unpick the work of its rogue trader, a day of share price turmoil across the world, which made the losses even larger.

As for its soon to be ex employee, he could take a lead from Nick Leeson, whose website advertises his skills as an after dinner speaker.

Mr Leeson is now no longer top of the rogue trader perch.