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Massive fraud at SocGen bank


Clair
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Societe Generale hit by €5bn trading fraud

La Société Générale frappée par une gigantesque fraude

I read this in the French papers this morning and was astounded by the fatc that a loss of €4.9 billion (£3.7

billion) would still allow the bank to make a profit!!!

[quote]... The bank said that its full-year net profit would drop to €600 million to €800

million from €5.22 billion a year earlier...[/quote]
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Fortunately our few bob is elsewhere but if these expert traders are looking after our investments,it doesn't sound too good. You'd think that the bank would have an inbuilt warning system to prevent anyone doing a Nick Leeson again.? I note that National Savings has reduced the interest 3 times in the last few months? Perhaps Darling Darling is in need of a another dig into our pockets. Even our ISA's have gone down several hundred,it seems the best bet now is to have nothing and let the state support you.

Regards

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Is Sarko going to do a "Northern Rock " and bail out the bank with tax payer  money  when the line starts to form outside the branches ? Interesting......The Northern Rock bail out was being questioned as it might have breeched EU rules .. so what will they say if this bank has to be bailed out as well ? ...the rules torn up I suspect .....I heard the bank was looking to the Middle East  for help ?
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[quote user="Clair"]Naaah! He "only" lost £827 million... [:-))]

This is someone who was apparently involved in "plain vanilla"(= boringly simple?) trades, but who used his knowledge of the control systems to hide the losses...
[/quote]

Considering that most of the right hands of administrative departments and banks in France don't seem to know what the left hands are doing (or talk to them) it isn't really that suprising is it?[;-)][Www] 

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In the overall scheme of things, it doesn't matter much, but was this fraud?  I always think of it as being something involving personal gain, whereas this bloke simply (!) compounded a big gamble with further massive gambles and it all went ..........  So folly, exacerbated and not stopped by poor internal controls.

Nobody seemed sure in the media today whether he had been dismissed or not.  Do you think they'll make up his holiday pay?

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Following the Nick Leeson incident something called the Basel Accord was drawn up. This forced all banks to build systems that would constantly monitor every loan, multiple loans, shared loans, repayments, defaults and losses. It's called Credit Risk Management. No bank in Europe is now permitted to have loan exposure that exceeds a certain % of its worth. All UK banks have been building these systems, and monitoring them for years. It's an horrendously complex requirement. What it boils down to is that if you walk into a bank and ask for a loan, the laddie on the desk can simply get your profile up on the screen and it will tell him straight away how much you can borrow based on your financial situation. That's why loans can be arranged so quickly, this applies to business accounts and credit card limits too. The systems pull all of the info together and do the calculations.

The same systems should have been in place at SG. Everyone should have thresholds in place, plus dual signatory sign off's, plus automated flags and warnings that jump up on a seniors screen if anyone exceeds them. In this day and age it should be absolutely impossible for anyone to operate in isolation in such a way as to lose these sums unnoticed. So either the chap had bosses who were turning a blind eye as he was making them lots of money, or their credit risk systems don't work.

The term fraud is a bit of a misnomer. If the trades has produced a massive profit for SG, would they have still termed it a fraud? I don't think so. It all went pear shaped and they got their fingers burned. It also stands to reason that if they lost that money then they lost it to someone...and that someone made a profit on the deal? It wasn't fraud it was a high risk strategy that went wrong. This guy did not, as far as I am aware, make anything other than his salary out of this. If that is the case then he didn't defraud anyone, unless the 'other accounts' that the losses were being fed into were linked to him.

The only reason that I know any of this is that I am one of those sad geeks that spent 2 years helping to build and monitor a system for one of the big four UK banks. It is a minefield, and not helped by the fact that people can circumnavigate any system if they know it well enough, and greed is always an excellent incentive to do just that.

Cheers

Rob G

 

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I bought the local rag today, just to see whether they'd started queueing outside the nearby SocGen branch to get their money out.

News from Paris of the €7bn hole in the accounts of the 2nd largest bank in France warranted about 1/3rd of P7 in section 2 of the paper.  Tomorrow's big (!) Handball match in Nimes got more column cms, together with news of the latest plonker to drive in to the fosse somewhere around here.

Love it!!

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The term fraud is a bit of a misnomer. If the trades has produced a massive profit for SG, would they have still termed it a fraud? I don't think so. It all went pear shaped and they got their fingers burned.

Sounds about right, I am sure he was/will be set up as a fall guy - what other motive would he have to do this?  I think he will be made a scapegoat - as you say if he was making huge profits then all is well.

Makes you wonder if other banks do the same thing....

Deby

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Sky News suggested Soc Gen's offloading of excess shares over the past week or so may have contributed to the decision to cut interest rates in the US. If this is the case then Nick Leeson is only in the halfpenny place compared to this rogue.
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[quote user="Eos"]Sky News suggested Soc Gen's offloading of excess shares over the past week or so may have contributed to the decision to cut interest rates in the US. If this is the case then Nick Leeson is only in the halfpenny place compared to this rogue.[/quote]

Either Channel 4 or BBC1 news (I cannot remember which) said that the recent stock market turmoil was caused by his antics - at least in part (ignoring the fact that what the guy had done was discovered after the turmoil actually happened and all those "in the know" attributed the stock market behaviour to completely unrelated economic (and behavioural) factors).  Of course this was just a statement the newsreader made, no source, no justification, nothing to back-up the comment).  I cannot remember their exact words as I dismissed it as tripe immediately.

Ian

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SocGen's admin bods found out about the irregularities 3 days before they were made public. they used the 3 days to reduce the bank's exposure.

[quote]Daniel Bouton, SocGen chairman, on Thursday defended the bank’s

decision to hold back the information, saying that had it revealed its

exposure – estimated at about €50bn – the “market would have played

against our positions and SocGen”. This would not have been in the

interests of either shareholders, customers or the market, he argues,

with the losses likely to have been exponentially higher than the

€4.9bn incurred.

Regulators, too, appear to have been reassured

by the rapidity with which SocGen moved to address the situation. By

the time the Autorité des Marchés, France’s stock market regulator,

arrived at SocGen offices on Sunday, Mr Bouton had a clearly defined

plan to close the positions and make an announcement by the middle of

the week.

[...]One insider said that although the

unprecedented market plunge on Monday had exacerbated SocGen’s losses,

it also gave the group greater scope to close its positions within

those limits as volumes were unusually high.

http://www.ft.com/[/quote].

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From reading the French paper articles on this, there is a lot of talk about the fact that his activities before SocGen closed them amounted to about half the loss they reported. The difference was apparently caused by their hasty closure of the trades he had set forward.

There are also questions about SocGen off-setting the loss against their 2007 accounts, when the trades occurred in 2008.

This is getting fishier by the day... [Www]

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It seems his brother was involved in a little argy-bargy* a little while ago. According to "Figaro" there was a spot of embezzlement at BNP in which he was implicated....

http://www.lefigaro.fr/societes-francaises/2008/01/29/04010-20080129ARTFIG00312-olivier-le-frere-de-jerome-detournait-a-son-profit.php

*argy-bargy - nothing to do with hauling freight in unpowered water craft on the River Plate, but I think it ought to be.

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