Rogue Trader Costs Firm $7.1bn, CEO Offers To Resign
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Shares in the French bank have been under pressure in the last few days on rumours of further asset write-downs, when last weekend it was discovered that it had an even bigger problem - an unnamed trader had somehow managed to set up secret positions and traded beyond his limits in plain vanilla futures linked to European stock indexes, resulting in some $7.1bn in trading losses!
SocGen has confirmed that it has already closed out the rogue trader's positions. The bank said that 'aided by his in-depth knowledge of the control procedures resulting from his former employment in the middle office, he (the trader) managed to conceal these positions through a scheme of elaborate fictitious transactions'. The trader, who is said to have worked alone, is thought to have confessed and is currently on suspension. He will be dismissed in due course. The bank has also said that the individuals responsible for the trader's supervision will leave the Group.
In addition, the bank confirmed Thursday that further subprime lending-related write-downs will also account for another $3bn in the fourth-quarter, although SocGen still expects to make a full-year profit of between $874m - $1.1bn for 2007.
SocGen chairman and CEO Daniel Bouton is said to have offered to resign, but his resignation has been rejected by the bank's Board. The bank now plans to raise $8.1bn in new capital to beef up its balance sheet.
In other news, Bloomberg reports that Bank of America is to raise $6bn by selling preferred and convertible preference shares in order to rebuild its Tier 1 capital ratio. BofA reported a 95% fall in fourth-quarter profits Tuesday (to $268m), after $5.28bn in asset write-downs and loan loss provisions.
The Daily Telegraph reports that US regulator The Securities and Exchange Commission has asked ABN Amro, Barclays, Fortis, Royal Bank of Scotland and Santander for the names of all those who had insider knowledge of their ABN bids, as it is investigating share trades in ABN in the weeks leading up to Barclays' initial attempt to acquire the bank. The requests have been described, however, as 'routine'.
Reuters reports that Credit Suisse has refused to comment on the rumours circulating this week that it is likely to make a bid to acquire Bear Stearns.
Financial News reports that analysts at Keefe, Bruyette & Woods believe that more asset write-downs are likely at Fortis.
Jefferies & Co has just announced its financial results for the fourth-quarter. The firm sustained a net loss of $24.2m. CEO Richard Handler said that 'despite the incredibly difficult second half of 2007, we completed the year with record net revenues and the third best net earnings in Jefferies' 46-year history. We are not satisfied with our results in the fourth-quarter, but believe our franchise is intact, our balance sheet is strong, and our 2,543 employee-shareholders are committed to doing our absolute best, regardless of the environment'.
The Wall Street Journal reports that Merrill Lynch CEO John Thain has said that, although he is 'concerned' about the state of the US economy, he isn't sure that the country is actually yet in recession.
Reuters reports that Moody's Investor Services has now changed its outlook on Wachovia Corp. to 'negative' from 'stable'.
Finally, Bloomberg reports that WestLB is thought to be mulling over taking legal action against Fitch Ratings, after the rating agency downgraded the bank's individual rating. WestLB CEO Alexander Stuhlmann said that 'the analysis of Fitch lacks any basis. The agency rated the bank without any knowledge of the relevant internal information'.
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