Right as French bank Société Générale is unveiling the new futures brokerage unit, NewEdge, the result of a merger between Soc Gen’s futures broker Fimat with Calyon Financial, it was rocked with massive trading scandal. The bank announced Thursday in a letter from Chairman Daniel Bouton that a massive fraud undertaken by a bank employee has led to huge losses. Numerous news outlets have reported that one rogue trader has caused a €4.9 billion ($7.1 billion) loss for the French bank.
The Financial News Online reported that SG stated, “one trader, responsible for plain vanilla futures hedging on European equity market indices, had taken massive fraudulent directional positions in 2007 and 2008 beyond his limited authority”.
According to reports the trader’s experience working in the back office of the bank allowed him to mask the position.
There has been some speculation that the unwinding of these positions at the beginning of this week contributed to the huge drop in equity indexes around the globe Monday and Tuesday. While unconfirmed, it could account for the quick recovery in U.S. equities later in the week as the mass sell-off in Europe may not have been in reaction to weakness in the U.S. economy.
Stay tuned.
