EUR 4.9 bln fraud-related trading loss at Groupe Societe Generale

Publish date: 26-01-2008
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The Societe Generale banking Group, France's second largest bank, yesterday informed it had been the victim of fraud committed by its brokers that was expected to propagate a negative impact of EUR 4.9 bln on its operations, according to a press release.

SG is also being forced to make further write-downs and provisions of EUR 2 bln relating to the US credit crisis. That elevates the total loss suffered by the Group to EUR 6.9 bln. Societe Generale says the fraud was committed by one single trader. The announcement accompanies the publication of last year's financial results, although the incident had been discovered on January 20.

Societe Generale Chairman and CEO, Daniel Bouton, stated that, although the loss was quite big, all the due measures had been taken for a redress and for preventing similar situations in the future. The trading of Societe Generale shares was been postponed on Euronext. When the trading began, the quotation ahs already dropped by 3.64 per cent to EUR 76.20.

Trader behind fraud - Jerome Kerviel

The trader behind the massive fraud is called Jerome Kerviel, a source at the bank said Thursday. The source said Kerviel, who earned less than 100,000 euros a year, had been with Societe Generale since 2000.

He worked in the investment bank division, moving from the middle office which checked deals to the front office or trading desk in 2005, the source added.

BRD stock trading was suspended on the Bucharest Exchange in the morning but the process was resumed after 12:30, when they dropped by 3.04 per cent, a share price being RON 19.1 compared to RON 19.7. Afterwards the shares made up for the loss and began to grow.

BRD-GSG officials say the fraud in its activities on the financial markets would not affect the financial solidity of the group and that indicators would remain at international standards. BRD Chairman Patrick Gelin says the fraud is not expected to hamper the operations of the bank he manages in Romania. 'BRD is not at all concerned about what happened and the bank is not being affected,' Gelin stated. In fact, the fraud only stands for 0.04 per cent of the total assets of over EUR 1,000 bln at a group level, BRD General Manager Petre Bunescu also noted. The incident will not affect BRD's profit in 2007 and the profit reported after the first nine months of 2007 shows that the financial results were in lien with the strategy, bank officials say. The 2007 Societe Generale net profit will stand somewhere between EUR 600 and 800 M.

In fact, Societe Generale will proceed to underwriting a capital injection of EUR 5.5 bn in the weeks to come. Despite the 2.05 bln asset depreciation, the bank has nevertheless announced that it was not going to amend its dividend policy. And yet, credit rating agency Fitch has downgraded Societe Generale's individual rating to B from A/B, with a stable outlook, following the EUR 4.9 bln fraud-related trading loss uncovered at the bank, Rompres informs.

Fitch has also affirmed SG's short-term IDR and support ratings at 'F1+' and '1' respectively and has downgraded Societe Generale's long-term issuer default rating (IDR) to 'AA-' from 'AA', with a stable outlook.

The Bank of France has for the time being announced investigatyions into the tarding fraud at the French banking group. Societe Generale is one of the largest groups in the eurozone with 103,000 employees aroudn the world. The groups has three amjor core bsuiensses: retail banking and specialsied financial services (seving 19.8 M customers), asset management and investment services.

BRD-Groupe Societe Generale is Romania's second largest bank with EUR 8.7 bln in assets under management. The bank serves over 2.2 M customers and operates over 600 units. BRD is the second best capitalised company on the BVB (nearly EUR 5 bln).

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