Rogue Trader costs Societe Generale 7 Billion!!

Massive fraud by a rogue trader at Societe Generale SA has led to a €4.9 billion ($7.16 billion) write-down and is roiling markets as far away as Asia and further shaking investor confidence in Europe's biggest banks.

The bank, France's second largest after BNP Paribas SA, revealed early Thursday that it had detected a case of "exceptional fraud" due to a single trader who had concealed enormous losses through a scheme of "elaborate fictitious transactions."

The bank identified the trader as Jerome Kerviel. Mr. Kerviel, 31, joined Societe Generale in August 2000 and was working as a trader on the futures desk at the bank's headquarter near Paris. He was in charge of futures hedging on European equity market indices, known as "plain vanilla" futures. The bank said he was able to dupe the bank's own security system because he had inside knowledge of the control procedures gained from previous jobs with the bank.

Though Societe Generale says it first learned of what it termed "massive fraudulent directional positions" on Jan. 19, it waited until it could close out those trades before going public with the problem. Winding down the trades, the bank said, resulted in a €4.9 billion write-down, making it potentially the largest loss ever from an alleged rogue trader.

At a press conference, Chief Executive Daniel Bouton apologized to shareholders and said the bank wouldn't offer staff stock options or bonuses for 2007. Neither Mr. Bouton nor co-CEO Philippe Citerne will take a fixed salary through June, he said.

The size of the SocGen incident could far surpass one of the most notorious "rogue trader" incidents in global corporate history, the more than $1.3 billion attributed to Nick Leeson in 1995 which bankrupted British bank Barings. Barings collapsed after Mr. Leeson, the bank's Singapore general manager of futures trading, lost £860 million pounds -- then worth $1.38 billion -- on Asian futures markets, wiping out the bank's cash reserves. The company had been in business for more than 230 years.