One Rogue Trader at French Bank leads to 7 BILLION Dollars in debt

[SirFozzie]

http://www.theregister.co.uk/2008/01..._rogue_trader/

.... Wow. One rogue trader can lead to this much shit? Someone tell me this ain't true, please? (yeah, I know it's true, it's scary what one 31 year old can do, huh?)

Jerome Kerviel, 31, a junior trader at Société Générale Paris headquarters, caused five times the damage as notorious rogue trader Nick Leeson, who ran up losses of £800m ($1.58bn) that resulted in the collapse of his employer Barings Bank in 1995. Kerviel created fictitious accounts to take risky positions in the derivatives market that resulted in huge losses as stock markets across Europe fell.

The losses, reckoned to represent the largest ever fraud by a single trader, have shaken a banking system already struggling from the effects of the US sub-prime lending crisis. The City of London is buzzing with rumours that it was the unravelling of Kerviel's risky position after SocGen discovered them last weekend led to a drop in share prices across Europe, as market bears responded to a influx of sell orders by pushing markets further down.

SocGen maintains it will be able to weather the storm, with plans to raise €5.5bn ($8.01bn) in order to maintain liquidity. The bank continues to anticipate posting €800m ($1.176nn) profits for 2007.

Kerviel, described in reports as both intelligent and a troubled Walter Mitty-style fantasist, appears to have acted alone and without any personal financial benefit. He apparently joined the bank as a developer working on the middle office systems that control how much a trader can risk. The systems limit how much a trader or group of traders can risk.

[Logan]

Flasch posted about this in the 2008 financials thread. It's actually pretty easy to do when you have a breakdown in controls.

In other news, "Ugly Americans" by Ben Mezrich (of "Bringing Down the House" fame) is one of my favorite books, and until this story broke, I figured that the name of Nick Leeson, like the other names in the book, was made up.