A fraud involving a single trader has cost French bank Societe Generale €4.9 billion. The bank said it was in the process of dismissing the Paris-based trader and added that his managers would leave the company.
A source quoted by the AFP news agency later named the trader as Jerome Kerviel. The source said Kerviel, who earned less than €100,000 a year, had been with Societe Generale since 2000.
He worked in the investment bank division, moving from the middle office which checked deals to the front office or trading desk in 2005.
The case dwarfs that of Nick Leeson, the British 'rogue trader' who lost £860m at Barings, causing the failure of the British bank in 1995.
Shares in the bank were suspended for a time in Paris but reopened to finish the day down 4.1%. SocGen also said its board had rejected an offer by chairman and chief executive Daniel Bouton to resign.
'The transactions which involved the fraud were simple - taking a position on shares rising - but hidden using extremely sophisticated and varied techniques,' Mr Bouton said in a statement.
He added that he found out about the fraud only on Sunday and that the governor of the Bank of France had been informed. The French central bank later said it would carry out an inquiry.
The trader is believed to have built up the huge losses gambling on share futures. The bank said the trader took out 'massive fraudulent directional positions in 2007 and 2008 beyond his limited authority'.
Mr Bouton said he believed the trader was acting alone. He added: 'I don't know the person and his motives are totally irrational. It doesn't seem that he was able to benefit from these colossal trades and directly he did not, that is for sure, although investigations will have to be carried out.'
The group confirmed that four or five of the trader's managers had resigned after the discovery at the weekend. Societe Generale said it was just 'bad luck' that the fraud was discovered amid this week's market turbulence.
The unauthorised trades may even have returned gains if it had not been for the market losses, according to the group.
Mr Bouton said: 'This is just bad luck, it's Murphy's Law. We discovered it at the same time as the markets plummeted. US markets went up last night and we were really unlucky, but we had to settle these positions as fast as we could and we did so during the three-day market crisis.'
SocGen also announced further writedowns of €2 billion linked to the global credit crunch and said it would raise €5.5 billion through a shares issue to strengthen its balance sheet. The losses cut its 2007 profit to €600-800m from €5.2 billion in 2006.
