As you may be aware, amidst this past week’s financial market turmoil world wide, we had another very significant development happening. French banking giant Societe Generale revealed a trading fraud which cost the bank $7.2 billion.
Trader Jérôme Kerviel had built combined trading positions over recent months, totalling about €50 billion or $73 billion. SO in this past week, SocGen unwinded about $70 billion dollars of positions (after considering that about $3 billion were direct position losses acknowledged by the bank). One can only imagine the kind of challenge given to SocGen’s best traders to unwind such large positions without causing panic in the markets and protecting their stock price.
This report by Wall Street Journal is the best so far.
We can probably use the simple thumb rule that for every one fraud revealed, at least one more will not be revealed, and one can only imagine what all is hidden in those back office billion dollar trades.
Here are two video reports:
Imagine… SocGen is known internationally for its expertise in equity derivatives. And Risk Magazine had awarded the bank its “Equity Derivatives House of the Year” this month. So a lot of work is needed on the reputation front, to ensure that it does not lose profits from its equity derivatives business. Building reputation is hard; rebuilding is harder.