PARIS — The rogue trader scandal at Societe Generale led to a 3.35-billion-euro ($4.9 billion) loss in the fourth quarter of 2007, the French bank revealed yesterday after a damning internal inquiry into its risk controls.
The total losses from unauthorized trades blamed on trader Jerome Kerviel, put at 4.911 billion euros, also led to a collapse in full-year net profit to 947 million euros ($1.39 billion) — down 82 percent from 2006. Societe Generale said it suffered an overall loss of 3.35 billion euros ($4.9 billion) in the fourth quarter — in contrast to a profit of 1.18 billion euros in the same quarter in 2006 — which it blamed on “exceptional fraud” and subprime-related losses. Last month, the bank announced the rogue trader losses, the biggest in investment banking history, and Kerviel has since been charged with breach of trust, fabricating documents and illegally accessing computers.
He has not been charged with fraud however and has accused the bank of making him the “scapegoat” for his trading which he insists managers knew about. There has been widespread criticism that the bank appointed Kerviel, a former controller, to a trader’s position thereby breaching a so-called Chinese Wall in investment banks designed to keep the two sides apart.
An internal bank inquiry published late Wednesday found that Kerviel’s allegedly unauthorized trading had not been detected because of his sophisticated techniques, but it also pointed the finger at internal audit and risk control failures. After discovering Kerviel’s trading, Societe Generale was forced to close futures contracts — bets on the future movement of European stock markets — with a total risk exposure of 50 billion euros ($73 billion). In selling these contracts in haste over three days, the bank incurred a loss of 4.9 billion euros, almost wiping out the profits for the whole year.
The full-year profit for 2007 of 947 million euros was better than expected, however, offering some relief to investors and meaning shares a mild 0.24 percent to 66.44 euros in early afternoon trading.
In its statement, Societe Generale expressed confidence that despite the trading losses and more than two billion euros of losses on the US subprime mortgage market it would get back to growth in 2008.