Rogue trader made profit; SocGen caused losses
Reports on the continuing sage into massive financial losses incurred at Societe Generale took a surprise turn this week.
According to legal arguments filed over alleged rogue trader Jerome Kerviel, the hedges he had placed for SocGen were actually in profit to the tune of over 1.5 billion euros (£1.1 billion).
Additionally, the massive loss of nearly £4 billion was caused by Societe Generale panicking and selling the hedges short.
The BBC reports that Banque de France, France’s central bank, instructed SocGen to close down Jerome Kerviel hedges as quickly as possible.
This was dutifully carried out by Societe Generale’s chairman, Daniel Bouton, who then sold the positions into a declining market.
The result was to wipe out a £1 billion profit and turn it into a £3.7 billion loss.
While Jerome Kerviel is now being processed with fraud charges, Daniel Bouton protests that SocGen was entirely innocent and that the bank had sophisticated controls to prevent rogue trading.
The overall situation suggests a remarkable ineptitude at Societe Generale, not simply allowing conditions for rogue trading to go unnoticed for as long as a year, but also selling short at a loss, potentially maximising damage to the bank.