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“This is Leeson-squared”

Senior market participants reacted with disbelief on Thursday to news that a SocGen trader was able to hide toxic positions from his superiors that were so large it has cost the French bank almost €5bn to unwind them.

Rumours of a mega-writedown at SocGen have swirled in Paris and London over recent days, but the assumption had been that the bank had merely been slow to recognise subprime-related exposures. The fact that the apparent rogue trader was operating in run-of-the-mill equity index derivatives compounded the shock.

“This is Barings times how much?,” asked one trader. “Leeson squared?”

He added: “The potential size of the underlying (trading positions) is incomprehensible. You can’t just hide things like this in a modern investment bank.”

Market participants were quick to blame recent extreme weakness in European equity markets on the fact that SocGen has been desperately unwinding its positions over recent days. “This explains a lot. It helps explain the dislocation between here (London) and New York.”

While SocGen’s shares remained suspended on Euronext, equities across the rest of Europe surged on Thursday, with traders citing a combination of catching up with a recovery on Wall Street overnight and a sense of relief that a mystery market overhang had been removed.

This entry was posted by Paul Murphy on Thursday, January 24th, 2008 at 8:11 and is filed under Capital markets. Tagged with . You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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Comments

  1. Jan 24   10:10 Posted by Rogue Trader [report]

    Well, the minute they discover my real fraud, not that little tiny one, they will really get squared.

  2. Jan 24   9:46 Posted by GG [report]

    The real scandal is SG pretending it’s a case of Fraud by an isolated individual acting on his own - I don’t buy that for a minute, these banks know what their traders are doing, the days where a trader can hide trades from the whole company are gone, SG took massive risks and lost, and are taking the easy route of claiming that some stealth-trader slipped through the cracks rather than own up to management incompetence. The heads that will roll will be in risk management and not the guys managing the trading floor, and that’s totally scandalous. It’s the French special, first Calyon, now SG - cowards in constant CYA mode!

  3. Jan 24   9:43 Posted by Alea | Huge “Fraud” at SocGen : $7.1 billion Lost [report]

    […] FT Alphaville is on the case : [ 1 ] “Much more to be told here” - SocGen’s €5bn mega-fraud [ 2 ] The SocGen mega-fraud - let’s start with some text and pictures [ 3 ] “This is Leeson-squared” […]

  4. Jan 24   9:12 Posted by Anonymous [report]

    Leeson,Akerman of the Deutsche Bank,Ospel of the UBS - how many more are still out there and what will be their sentences ?Hopefully heavier than that of Ronald Biggs.

  5. Jan 24   8:43 Posted by NJS [report]

    Keep digging - it seems literally incredible.

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