Daniel Bouton, the head of Societe Generale SA said lessons learned from its trading fiasco are helping strengthen security in the global banking community but that doesn't mean banks will be spared from future fraud.
Speaking in his capacity as president of the French Banking Federation, Bouton said losses of almost €5 billion (more than $7 billion) SocGen blames on unauthorized trades by Jerome Kerviel have prompted the French bank and many of its competitors to strengthen control systems.
Societe Generale has taken several steps to tighten controls following an internal report into what went wrong in the Kerviel case. The report noted 74 red flags raised on Kerviel's trades that failed to sound the alarm — he was spotted only on the 75th.
The bank says Kerviel faked hedging transactions across a range of financial instruments. They weren't spotted because Societe Generale's back office controllers monitored the trading of individual products separately.
The bank now has installed new controls that cross-check red flags raised across different products, allowing individual traders' histories to be monitored.
Societe Generale has also changed its procedures to monitor the gross exposure of traders, besides the net position. Kerviel amassed positions worth around €50 billion ($78.47 billion), but his net position appeared unremarkable because he balanced his real trades with fictitious transactions.
Security has been stepped up in computer systems to prevent a repetition of Kerviel's ability to borrow colleagues logins and passwords.
He is facing preliminary charges of breach of trust, forgery and unauthorized computer activity.
Bouton said Kerviel's trades haven't dented confidence in the bank among "the hundreds of financial operators we work with. This fraud does not put into question our risk-assessment system because it involved positions that were hidden," he told a finance committee hearing.
"We have not lost any clients."
The judicial investigation could end by this summer and a trial could be held next year, the trader's lawyer, Guillaume Selnet said earlier this month.
Bouton offered his resignation twice over the scandal, but his offer was rejected by the board.
Société Générale Group is a France based financial institution that operates mainly in three geographical areas: Central and Eastern Europe, Mediterranean Basin, Africa and the French overseas departments and territories. Having over 60 subsidiaries, the Group is present in 77 countries around the world. Its offers and services include retail banking, private banking, corporate and investment banking, asset management, specialized financial services and global banking services.
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On 24 January 2008, Societe Generale issued a press release announcing the discovery of a fraud by a trader responsible for plain vanilla futures hedging on European equity market indicies.
After investigating the fraud which included interviewing the trader concerned, the Group decided to close the positions as quickly as practicable.This was done at a time of very unfavourable market conditions and led to a loss of Euro 4.9 billion.
Eurex, the European-based international derivatives exchange, raised the alarm over positions taken by Jérôme Kerviel, the trader at the centre of the scandal, as early as November 2007, French investigators say.
Since the issuance of the press statement there has been significant investor, politician, market participant and general public expression of concern regarding: risk management at the bank timing of reporting to authorities lack of investigation when Eurex raised concern in November 2007 and when will the full story will be told.
Societe Generale also announced additional write-downs of Euro 2.05 billion against its US residential mortgage risk and its exposure to US monoline insurers. The losses relating to the fraud and the additional write-downs will be taken in the 2007 accounts and will lead to an expected loss in the Corporate and Investment Banking business of Euro 2.3 billion and an expected profit at the Bank of Euro 0.6 – 0.8 billion for the year. On 11 February the profit estimate for the Bank was increased to Euro 947 million.
The Board of Directors also decided to launch a capital increase with preferential subscription rights of Euro 5.5 billion which had been fully underwritten by JPMorgan and Morgan Stanley.
Shareholders heckled and jeered management of French bank Societe Generale at its annual general meeting on Tuesday, taking them to task for the loss of billions blamed on a rogue trader.
Weak management and insufficient internal risk controls at Sociéte Générale made it possible for a 31-year-old trader to cause nearly €5 billion in losses at the French bank, a report from an internal investigation has concluded. The report also said that the trader, Jérôme Kerviel, might have had an accomplice.
Societe Generale reported a 23.4 percent fall in first quarter 2008 net profit although earnings came in above the average market forecast. The results do not include the losses from the "trading scandal" announced In January 2008. These were included in the 2007 reported results.
Societe Generale has announced that it's Chief Executive Office, Daniel Bouton, is to stand down but will still retain the role of Chairman. The Board had previously rejected Bouton's offer to resign. The press release stated that the Board had decided to proceed with "the dissociation of the functions of Chairman and Chief Executive Officer."
Daniel Bouton, the head of Societe Generale SA said lessons learned from its trading fiasco are helping strengthen security in the global banking community but that doesn't mean banks will be spared from future fraud.
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