It's been a rough week for France's second largest bank, Societe Generale. After days of jittery markets, the bank is now hitting the headlines with revelations of a massive fraud. Societe Generale says one of its traders acting alone orchestrated an elaborate scheme of fictitious transactions that cost the bank more than $7 billion dollars. It may be one of the biggest banking frauds in history. It dwarves the Bearing Banks scandal in which a single British trader brought down the venerable British bank in 1995. customers at this Societe Generale branch near Paris couldn't believe the news today. ï¿½That's a lot of money,ï¿½ this man says, ï¿½they'll probably find a way to make it up by charging us bank fees.ï¿½ The bank hasn't named the accused trader, but he's been widely identified as 31 year old Jerome Kerviel who worked on the futures desk in Paris. According to the bank, the fraud was fairly simple but concealed in a sophisticated way. It says the trader had previously worked in the bank's middle offices, and had such intimate knowledge of control procedures that he knew how to get around them. The banks CEO, ï¿½On Saturday, we uncovered the existence of a concealed market position, completely hidden, outside our accounting system but within our field of activity in the markets. This concealed market position was of an enormous magnitude and poses a considerable risk to the bank.ï¿½ The bank is facing additional woes. Societe Generale also announced it would be writing off $3 billion dollars in losses as a result of the sub prime mortgage crisis in the United States. It plans a substantial capital increase to shore up its finances. But French Budget Minister told French TV the government wouldn't be bailing anyone out, ï¿½The state cannot act as a firefighter, that's not the right thing to do. The state can act as a regulator. The French state can also set itself the goal of good management in regulating the economy.ï¿½ Societe Generale has suspended the accused trader and is pressing charges. France's Banking Commission has launched an investigation into how such a massive fraud could be carried out without detection. But Societe Generale isn't about to go bankrupt. It still plans to announce annual net profits of about $1 billion dollars next month.
GlobalPost.com is now PRI.org
GlobalPost and PRI have joined forces to expand in-depth global news reporting to create a more informed, connected and empathetic world.Learn why See GlobalPost stories Dismiss