SocGen hit for £3.7bn by rogue trader

The losses are so bad the bank has had to raise an extra e5.5 billion in fresh capital to cover them and further subprime-related losses.

Bankers worldwide expressed astonishment that a single trader could have concealed such enormous losses. Some suggested SocGen's sudden closing of the positions on Monday was a major factor in forcing the US Fed to slash interest rates the following day.

The bank said it discovered last weekend that a single trader in Paris had secretly been setting up huge positions - far beyond his authorised limits - betting on stockmarket indices across Europe.

The fraud has echoes of Nick Leeson, the rogue trader who single-handedly brought down British bank Barings through his unauthorised bets on the Singapore futures exchange. He was jailed for six-and-a-half years after running up losses of more than £860 million.

SocGen said its trader had taken "massive fraudulent directional positions in 2007 and 2008". When they were discovered, the bank closed them all "as quickly as practicable in the best interest of market integrity and the group's shareholders".

The discovery could not have come at a worse time because the world's equity markets were thrown into turmoil on Monday and virtually every European market fell by 7% or more.

SocGen said: "Given the combination of the size of the positions and the very unfavourable market conditions encountered, this fraud has a negative impact of e4.9 billion" which will be taken off 2007 profits.

The bank said the rogue trader had been able to conceal his trading positions using knowledge gained from previously working in the bank's middle office, which oversees transactions and compliance.

The trader has been suspended and will be dismissed while his immediate bosses "will leave the group". Chairman and chief executive Daniel Bouton offered his resignation but it was rejected by the board.

France's largest retail bank, Crédit Agricole, was hit by a e250 million euro charge last year on a similar unauthorised trading position. Rival BNP Paribas today said it would rush out its 2007 results next week but added that it had no "loss of item which would justify any particular warning to the market".

SocGen also revealed e2.05 billion of writedowns, comprising e1.1 billion on US mortgage risks, e550 million on US monoline insurers and e400 million of other exposures.

The bank is one of the largest European investment banks in London employing 2800 in the UK. Of these, 1500 are based at its investment banking headquarters in Tower Hill. Its fund management arm, SocGen Asset Management, used to be run by "superwoman" Nicola Horlick.

SocGen has had to go cap in hand to shareholders for funds with JPMorgan and Morgan Stanley underwriting a e5.5 billion rights issue. SocGen shares were suspended in Paris.

Rogues gallery
2002: John Rusnak, foreign exchange $750m: Allied Irish Banks
1996: Peter Young: Morgan Grenfell Asset Management $300 million
2004: Four BP oil traders price fixing cartel $303 million fine
1996: Yasuo Hamanaka: copper trader at Sumitomo. $2.6 billion