Bank Says It Has Lost $7 Billion, Blames "Rogue Trader"

The French bank Societe Generale has announced that a trader “concealed massive trading positions built up over 2007 and 2008 through ‘a scheme of elaborate fictitious transactions,'” which ended up losing the bank 7.1 billion dollars. That’s as much damage by a single employee as the subprime-related losses the bank reported in the past two months. Oops.

According to Financial Times newspaper’s Alphaville website, the trader’s name is Jerome Kerviel, a 31-year-old trader who worked in the bank’s Delta One products team in Paris.

Societe Generale declined to comment on the report.

But the bank did confirm that the trader was a Frenchman in his 30s who joined the bank in 2000 and earned a salary and bonus of less than 100,000 euros.

He was responsible for betting on the markets’ future performance, bank executives said.

A related article says the bank suspects the man used “in-depth knowledge of the control procedures gained while working in the bank’s middle office in his former job.”

However, some in the financial world aren’t buying the current story:

“I think there’s much more to be told here,” said one senior figure at a rival bank. “My personal view is that it is nigh on impossible for this to have happened as it has been told.”

“Rogue trader to cost SocGen $7bn” [BBC News via Metafilter]

“How rogue traders lose billions” [BBC News]
“”Much more to be told here” – SocGen’s €5bn mega-fraud” [FT Alphaville]
(Photo: Getty)


Edit Your Comment

  1. zibby says:

    This is going to be an interesting story. There’s a lot more going on here than has been revealed thus far.

  2. rhombopteryx says:

    Let me guess… His 7.1 Billion bet = BUY subprime-related securities.

  3. cosby says:

    Yea I want to read more about this

  4. darkened says:

    For some reason I highly doubt this mid level worker did this, he most likely is taking the fall for a bunch of people higher up than him in exchange for some kind of extremely large payout directly or indirectly.

  5. m4ximusprim3 says:

    @zibby: No doubt. Apparently, his job was to hedge against their larger investments.

    Even assuming he was rogue and evaded notice for three years, loosing 7bn dollars requires a HUGE amount of capital at his sole discretion with total oversight failure. Nobody in their right mind would put that much capital in his hands.

    The fact that his supervisors also being fired barely gets a footnote smells fishy to me.

  6. zero_o says:

    @darkened: I agree I bet if his “gambles” would have paid off the company would have congratulated themselves and maybe gave him a pat on the back. I bet he is just a fall guy for the company making risky investments.

  7. shoegazer says:

    This stinks; the guy apparently traded index futures – which are margined daily; how could Soc Gen not notice the billions of Euros of margin calls landing on his desk?

    Someone is clearly taking a fall here.

  8. exkon says:

    “Rogue Trader” No one plays using that rule set anymore!!
    (bonus points for anyone who gets the reference!)

    Who knew the French could be so dangerous?

  9. satoru says:

    Indeed this smells very fishy. So assume you’re trading in futures on all the international stock markets. This week you get SLAUGHTERED by the drops. Even if you assume a 20% drop, that means the 7 billion loss was only 20% of the money he was playing with. Thus he must have 35-40 billion on the books. That would be like putting the entire Fidelity Magellan fund portfolio onto the market, or putting all of Yahoo’s market capitalization into margin futures.

    The critics are correct in that there is no way one single individual was able to pull this off. You can’t shuffle that much money around without someone noticing.

  10. JustAGuy2 says:

    @exkon: Tyranid lover!

  11. m4ximusprim3 says:

    @satoru: I read an article in forbes where an analyst said that, to lose that much, his market position must have been at least 40bn euros.

    I’m sorry, but you can’t convince me he hid 60 billion dollars in investments. I don’t care how big your company is, you can’t not know you’re in for 60 billion, nor can anyone making 75k american a year have access to that much money. Period.

  12. econobiker says:

    From one of the early reports he evidently knew about how to get around the company’s “systems” for discovering some sort of bad trades, etc

    and it said he only earned 100,000 euros are year- yeah ONLY earned (about $145,000+/-usd). Poor baby…

  13. brokeincollege says:

    In Paris or New York, that’s nothing. To live comfortably, you have to earn a guaranteed $10k a month AFTER taxes.

  14. brokeincollege says:

    By the way, $145k a year nets you a little more than $80k in NYC. When half of your pay is from bonuses, that’s not much.

  15. Parting says:

    I smell a movie in Hollywood :)

  16. pantsonfireliarliar says:

    @econobiker: uh, that’s entry level analyst pay at most US investment banks. by entry level, i mean that’s what someone 1-2 years out of college can make at goldman, lehman, etc. so when they say he “only” made that much, it’s said mostly because it means he’s a more junior person who would never be able to see that much money.

  17. blurdo says:

    Wow! He makes Nick Leeson look like a rank amateur. I wonder who will play him in the movie.

  18. Benstein says:

    I nominate the bank’s management for the Darwin Award of the Century.

  19. Nemesis_Enforcer says:

    @exkon: Hahaha I thought it was a WH40k reference but Justaguy2 confirmed it. Maybe the great changer transformed his assets into liabilities…you know just because he could.