Blogging from the Highlands of Scotland
'From fanaticism to barbarism is only one step' - Diderot

Thursday 24 January 2008

"Red, Black and Rising"

Or should that be "in the Red"! (The title has been used as an advertising slogan by the bank for some years.)

French Bank Société Générale (link is to the main French website) has just announced a double-whammy - an internal fraud by a 'rogue trader' which has lost it EUR4.9bn (USD7.1bn; GBP3.7bn) and write-downs of EUR2.05bn (USD2.97bn; GBP1.55bn) worth of lending relating to the sub-prime market in the US. Although the bank states it will still make a profit of EUR600mn to EUR800mn for 2007, it needs to raise new capital of about EUR5.5bn to offset the losses. It's not clear if the latest write-downs in loans are are in addition to or part of the rescue package announced in December 2007, when it had to rescue an investment vehicle in the US.

Société Générale is one of France's oldest banks (founded 1864), it was nationalised in 1945, then in 1987 the government decided to choose it, of the three major French state-owned banks, for privatisation. It has always, until now, had a pretty good reputation for prudence and for careful credit-control, before, during and after the period when it was under direct state control. I knew a few people in Société Générale both when I lived in Paris and then some years later when I lived in Vietnam, where that's bank's person in Hanoi was a good friend.

It is however mind-bloggling to learn that a person described as 'mid-level' has been able to commit the bank to contracts of the scale required to produce a loss of EUR4.9bn - Robert Peston, the BBC's business editor, has his views on what's been going on. Worth a read. From the details that are emerging so far it seems that the bank's own internal control mechanisms of what its trading desks have been up to have been sadly deficient! No doubt a lot of internal checking (I hope) will be going on today in other banks to see just what may be lurking under the surface.

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