Societe Generale apologises to shareholders

Societe Generale bank’s chief executive took out newspaper ads today begging shareholders to accept his “apologies and deep regrets” after a trader at the bank was accused of fraud costing the company €4.96bn.

The bank has accused a 31-year-old junior trader, Jerome Kerviel, in what appears to be the largest trading fraud ever carried out by a single person. In a baffling twist, the bank said he appears to have netted no personal financial gain from the alleged schemes.

“I understand your disappointment, your anger,” chief executive Daniel Bouton wrote in the full-page advertisements. “This situation is perfectly unacceptable. I am aware of what the drop in the share price means for you. I ask you to accept my apologies and my deep regrets.”

Bouton said the trader used “simple” transactions that he covered up with “extremely sophisticated and varied techniques”.

Undetected by the bank’s multi-layered security systems, Kerviel had for over a year been fraudulently using the company’s funds to bet on European stock markets, Societe Generale said.

The bank, France’s second-largest, said it learned of the fraud last weekend. With money markets in turmoil, Societe Generale was forced to sell the contracts built up by the rogue trader just as stocks were plunging. It took three days to sell them.

With questions swirling over how the loss could have stemmed from the work of a single man, Christian Noyer, governor of the Bank of France, insisted today the sum had “nothing to do with the sub-prime crisis, with the difficulties of the financial market in general”.

On RTL radio, he said the vast size of the loss was just “chance”.

“If there hadn’t been a collapse in the markets early in the week, the size of the loss would have been much smaller,” he said.

Societe Generale filed a legal complaint on Thursday accusing the trader of fraudulent falsification of banking records, use of such records and computer fraud. Elisabeth Meyer, Kerviel’s lawyer, said on French television network BFM that he “is not fleeing” and is “available for judicial authorities”, without specifying where he was.

Many questions remain as to where, how and why Kerviel perpetrated what the bank described as fraud “exceptional in its size and nature”.

It remains unclear whether he was acting out of malevolence, ambition or some other reason. Three union officials representing Societe Generale employees said managers at the bank who briefed them about the fraud told them Kerviel was having “family problems”.

Employed by Societe General since 2000, Kerviel worked his way up from a supporting role in an office that monitors trades to a job on the more glamorous futures desk where he invested the bank’s own money by hedging on European equity market indices. That means he made bets on how the markets would perform at a future date.

Thierry Mavic, mayor of the western French town of Pont-L’Abbe where Kerviel grew up, described him as “someone with his head on his shoulders, someone thoughtful, a young man with no issues”, in an interview with RTL.

The trader was compared with Nick Leeson, who in 1995 bankrupted Barings Bank. Barings collapsed after Leeson, the bank’s Singapore general manager of futures trading, lost £860 million on Asian futures markets, wiping out the bank’s cash reserves. The company had been in business for more than 230 years.

Though Societe Generale’s loss is greater than Barings’, Bouton insisted that the bank was still financially sound and said he was convinced of the continuing confidence of clients “and the bank’s ability to bounce back”.

Bouton’s letter of apology appeared in Le Figaro, Les Echos and La Tribune newspapers.

Founded in 1864 after a decree signed by Napoleon III, Societe Generale is now present in 77 countries and employs 120,000 people.