FRANCE - French investment giant Société Générale has today admitted it needs to raise €5.5bn in new capital through share issuance after discovering a rogue trader in its hedging operations.
A statement issued by the group reveal SocGen officials discovered on January 19 a single trader responsible for "plain vanilla future hedging on European equity market indices" had hidden "massive fraudulent directional positions" in 2007 and 2008 worth €4.9bn to its 2007 pre-tax income.
This, along with further write-downs worth €2.05bn related to its exposure to the US residential mortgage-backed securities market, and recent credit market turbulence, has led the company to announce it expects its 2007 net income to now be just €600m-€800m, following its fraud discovery, and €5.5bn needs to be raised in capital through preference shares.
The single party involved in the fraud is said to have been able to hide his activity through "a scheme of elaborate of fictitious transactions" because of his "in-depth knowledge of control procedures resulting from his former employment in the middle office".
He has now been suspended and is likely to be dismissed while other individuals responsible for his supervision "will leave the Group", said SocGen, but the offer from Daniel Bouton, chief executive of the group, to resign has been rejected by the board of directors.
Officials state there is no residual exposure as a result of this fraud as it closed all of its positions as quickly as practically possible, but the size of the losses is as a result of the fraud and "unfavourable market conditions".
The additional capital being raised through new share issuance is in part to help finance its position regarding the acquisition of Rosbank, already announced.
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