Saturday May 17 2008
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After the shock revelation that  a rogue equity futures trader has cost France’s second largest bank €5bn, SocGen addresses the media.

(Via translation).

9.56 - Music, music. There’s noise in the background. There’s no official message to let you know where you are.  A chap from the BBC asks a female journalist with limited English whether he’s in the right place.  Patrick Hoskings from the Times also chimes in. “I don’t think there’s anyone official on this call,”  a mystery voice explains.  No one knows what’s going on - it’s chaos before the official call has even begun.

10.01 - “we’re all waiting,” explains one journo to two new arrivals to the conference call.  No sign of any official/SocGen action just yet.  Just half Europe’s financial media.

10.03 - very loud banging in the background. Someone makes a gag about a guillotine in action.

10.05 - we’re off - maybe - there’s vague sounds of something official in the background. There’s recorded message from a woman with terrible soft rock in the background, thanking us for our call on behalf of PriceWaterhouseCoopers.  So they have something to do with this shambles.

10.09 - give up and redial. Still the bleeding PwC woman, soft rock and frustrated journalists, complaining to whoever they can in the in the background.

10.12 - the chaos continues. They’re looking for our correspondent apparently. Starting to see how this bank managed to let an plain vanilla futures trader build up sufficiently vast positions to lose €5bn. They don’t seem to have mastered the basics of telecommunications.

10.16 - still a collection of journalists hanging on the line enjoying the terrible music.  The SG press office calls to tell me there’s a fault on the line. Update to follow.

10.19 - the conference seems to be going on: “dealing with an extraordinarily exception….specific case”.  The wires flash up that SOCIETE GENERALE CEO BOUTON SAYS BOARD REFUSED HIS RESIGNATION OFFER.  Which we knew already from this morning’s release.

10.21 - there’s a forceful type online complaining that the bank must restart the conference call. In the background:  “we are probably…nothing to do with the core activities….derivative product.” Hope you’re finding this as insightful as we are.

10.22 - Is this a conspiracy? Presumably the problem is only affecting the English translation. We’ve heard about it being difficult to get on as an English-speaker in the French banks.

10.23 - We’re in!!!!!!

10.24 - It’s muffled. Someone called Frederic (?) is talking….about the writedowns related to subprime.  Which wasn’t what we wanted at all.

10.26 - They’re running through the numbers is the press release, on the reduction of exposure etc. Used barometer related to the market for the marking down of CDOs.

10.30 - exposure linked to counterparty risk on monolines.

10.32 - net loss for SG CIB for €2.3bn. Ah ha - we’re going through the slides, currently on slide 11

10.33 - “we have just given you bad news. We have just shown you simultaneous that…the whole group was making quite good results.”

“The strength of our business …and the skills of people working in the group is wonderful.”

10.36 - to conclude - “all my apologies for those awful events we uncovered last weekend.”  Onto questions.

10.37 - have started legal proceedings but are not disclosing name of person.  Won’t disclose exposure amount - but were taken at beginning of 2008, and suffered from market crisis taking place over first two weeks of the year.

10.39 - “because that person had been working for many years in other banks and our back office, that person managed to construct…..managed to hide these positions with other positions that were entirely fictitious”

The trader managed to avoid any types of control

10.40 - total back office headcount about 2,000 people - increased by 50 per cent last year

10.42 - This must be Bouton:  ” I believe this was my moral duty to submit the board of directors my resignation….and it is the board’s duty to make the right decision….and firmly, adamantly asked me not to resign and to go on working in this very difficult situation and put the bank back on track for growth and profitability. And I will carry out this mission.”

10.45 - motivations of fraudster are “totally irrational.”  He didn’t directly benefit.  Further investigations will be carried out to see if he indirectly benefited.

10.46 - Phillippe was the person who spent hours with the fraudster - says it’s “inexplicable.”

10.47 - the interpreter can’t hear now

10.48 - bank had a “duty to cut off positions before disclosing the information.” “With the chance of good fortune, it was possible to liquidate these positions over three days which was quite exceptional.”

“They could have turned into gains if the market had gone up.”  “We discovered this at the same time as the market plummeting….we really had to settle those positions as fast as we could and we did so during the three day crisis which you all witnessed.”

10.49 - the takeover question!  Which is ignored.  Confidence and trust will be restored through equity raising - rating downgrades of one point - still maintains high rating.

On not disclosing sooner: “We’ll see what public opinion thinks of it and the regulator thinks of it.”

10.52 - “nothing has leaked out - just rumours yesterday afternoon but no specific leaks.”

10.53 - the interpreter cannot hear again…..

“Saturday and Sunday he [the fraudster] collaborated with our teams to make it possible for us to put a halt to that fraud as quickly as possible.”

“from his work position and his own operating position, no other positions have been established, we are sure that no other fraudulent positions have been established.”

10.54 - silence…..the interpreter cannot hear the question. Speak in the microphone, people

10.55 - “the risk and control system is not faulty….is not about taking on enormous directional positions up or down….not about speculation. Arbitration is what we do, with very small positions and limits.”

“He had the official SG book which allows him to carry out business…..uses other operations which cancel out the first positions…if long the index, then I’ll be short the other side so the amount seems reasonable….operations carried out as concealed operations are fictitious operations….he has this great skill of replacing them in accordance with the control procedures….he knows the control timetable and that positions are controlled on the basis of results….and is intelligent enough to transfer the fictitious hedge..”

10.58 - “the most extraordinary part of the story was that he did have the positions in 2007 but they were winning positions. He was cancelling with losing positions…..”

10.59 - bank is being accused of a challenge to its arrogance and intelligence.

11.01 - “we’ll just have to see if he had internal or external accomplices.”

11.02 - “he wanted to deceive all the various layers and types of control procedures…. are five to six control procedures.”

“it was impossible in my opinion for him to work with other people…. I’m convinced he was alone.”

11.03 - how many people will have to resign? No clear answer is forthcoming

11.04 - detected at end of Dec - because of mistake by the fraudster.

11.05 - resignations again. “the management team actually of course was reduced because of those resignations… between four to five people.”

11.06 - had been at bank five years - three years in the back office - but had never worked in risk area - sounds like he made a mistake and tripped a risk red flag, related to counterparty risk

11.07 - “we are now telling our customers first of all that this is an exceptional, extraordinary event”  “as opposed to Barings…the bank’s situation has not only be restored it is stronger because the tier one ratio will be stronger after this capital increase. The situation is totally different from that standpoint. There is no doubt in SG’s capacity to keep working for its customers….”

11.10 - back to why they didn’t reveal this on Monday morning, straight after discovery. “Tried to settle situation without leakages.”

11.11 - SocGen shares open down just 3.9 per cent, at €76

11.12 - Against the turbulent backdrop - “I believed that i had to propose to the board, which deliberated for quite some time, that we had to show all of our partners, shareholders, clients and employees… that it had been incurring a great loss resulting from an exceptional fraud and that we had been able to find solutions right away and indeed we were able in three days to settle this situation.”

11.14 - the man was let go with his passport, it seems.  “perhaps we made a mistake.”

11.15 - “I did not say stronger than before…I believe the board of director’s duty was to avoid adding to those terrible consequences other consequences that we had no control over.”

11.16 - “everything occurred in the last weekend….we had no suspicion whatsoever before Friday evening.”

The trigger - “a counterpart risk, a risk which went beyond the threshold, not by far actually, which seemed fishy and which Jean Pierre was informed of Friday evening.”

11.17 - Someone else is speaking - “there are errors in daily life and the procedure we were able to set up is flawlessly defined right from the start, we alerted the market authorities (AMG and BdeF)….this was done in full transparency.”

“really need to understand that Sat at 10pm for six hours the very first thing we had to do….was to really understand the situation we’re facing up to, gather quite a number of people…”

11.21 - SocGen now off more than 6 per cent

11.23 - fraudster is about 30, in the front office since 2005

11.24 - he was traditional operator within the trading room.  “I think it’s useless to talk about that person.”

11.25 - sounds like we’re drawing to a close.

11.26 - Bouton didn’t accept Jean Pierre Mustier’s resignation

11.27 - At Christmas, Bouton went to the Emirates (?) Apparently unrelated.

11.28 - “we didn’t try to have a hidden capital increase or one reserved to a specific category of shareholders…. will have to ask themselves can I trust the bank in spite of this awful accident.”

11.29 - senior management are renouncing part of their remuneration for 2008 - stock options?

11.30 -  trader wouldn’t have received his bonus yet for 2007. Salary plus bonus would have been below €100,000 - so would have been managing small positions - was at lower end of the scale.

11.31 - Someone there has asked that they say “one sentence in English.”
11.32 - French resumes - they don’t know what the “criminal name” is for what’s happened.

11.33 - “given all this crowd and this chaos, I will cancel everything with the TV and the radio.”

And they’re done.