Societe Generale's Trading Loss Incident

Paper Summary:

This paper examines how a junior employee at French banking giant, Societe Generale, cost the company $7.2 billion or nearly 5 billion euros by making disastrous bets on European stock prices through a series of unauthorized and wildly outsized transactions. The paper also discusses how the disclosure of this fraud delivered a new blow to a European banking industry already reeling from losses on American sub-prime mortgage securities.

From the Paper:

"The Societe Generale itself announced that the disclosure of this fraud delivered a new blow to a European banking industry already reeling from losses on American sub-prime mortgage securities -- including a $3-billion write-down (Hiltzik & Baum, 2008). Olivier de la Ferriere, a financial analyst at Richelieu Finance in Paris, remarked, "With everybody already quite scared about financial stocks, this creates even more of a threat to this sector (Hiltzik & Baum, 2008)." In the bank's haste to shut out Kerviel's illicit investments, there is a possibility that the bank may have intensified the European stock drop. Societe Generale ended up unwinding all the illicit investments and thus putting immense pressure on the futures market, and undoubtedly contributing to the decline in world stock markets. "

Sample of Sources Used:

• Associated Press. (2008). French trader: Bosses knew about risky trades. CNBC. Retrieved February 9, 2008, from http://www.cnbc.com/id/22900233.
• Bittermann, J. (2008). Report: Trader had drawn red flags. CNN. Retrieved February 9, 2008, from http://edition.cnn.com/2008/WORLD/europe/01/29/rogue.trader/.
• Finfacts Team. (2008). Monday newspaper review - Irish business news and international stories. Finfacts. Retrieved February 9, 2008, from http://finfacts.ie/irishfinancenews/article_1012389.shtml.
• Hiltzik, M. & Baum, G. (2008). Trader blamed for lost billions. Los Angeles Times. Retrieved February 9, 2008, from http://www.latimes.com/business/investing/la-fi-frenchscandal25jan25,1,5185728.story?page=1&ctrack=1&cset=true.
• Mackenzie, J. & Hurst, A. (2008). French trader Kerviel cooperating with police. National Post. Retrieved February 9, 2008, from http://www.nationalpost.com/news/story.html?id=266900.

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