Rogue trader to cost SocGen $7bn

BBC

French bank Societe Generale has announced losses of 6.9bn euros ($10.2bn, £5.2bn), blamed on a fraud by its trader and the credit crunch.

Societe Generale said it uncovered a fraud by a Paris-based trader, which resulted in a 4.9bn euros ($7bn) loss.

It also announced new write downs of 2.05bn euros related to the sub-prime mortgage crisis in the US

The bank, one of France's largest, will need to seek 5.5bn euros in new capital to make good the losses.

'Secret trade'

"I am sorry but I have a hard time buying the fact that a trader was able to set up a 'secret trade' of 4.9 billion without anybody finding out," said Ion-Marc Valhi at Amas Bank.

Frederic Hamm, fund manager at Agilis Gestion, believes that the fraud "impacts the reputation of the bank".

Chief executive Daniel Bouton offered his resignation but it was rejected by the board, the bank said.

Richard Fuld, the chairman of Lehman Brothers, told BBC News in Davos that "nothing stuns me, nothing really surprises me these days."

Shares in the bank were suspended on Thursday.

Since the beginning of the year, the bank's shares have declined by 50%.

Capital increase

The bank's losses have seriously dented its profits for 2007.

The company will announce its full year results on February 21, and it said that it expect its 2007 net income to be in the range of 600m-800m euros.

Societe Generale is also going to raise 5.5bn euros through a capital increase "to strengthen its capital base".

Meanwhile, another French bank, BNP Paribas, said that "it has not revealed any loss of item that would justify any particular warning to the market".