Dear all,

I am deeply sorry about the news that we announced this morning, and I imagine you are as well.

This weekend we discovered an unprecedented singular fraud in our equity arbitrage trading activities.  A trader deliberated circumvented internal controls by creating fictitious hedges in order to conceal fraudulent directional positions.  Detected by risk control procedures carried out on Saturday January 19, 2008, these positions were quickly sold or unwound between Monday and Wednesday.  Given the combination of the size of the position and the very unfavourable market conditions encountered, this fraud will have a negative impact of EUR 4.9bn on Société Générale’s pre-tax income.  Investigations have confirmed the isolated and exceptional nature of this fraud.

We have also decided to take additional write-downs in Q4 2007 on assets related to the subprime crisis using very severe loss rate scenarios to calculate the write-downs.  The global impact on Group results will be EUR 2.05bn.

The cumulative impact of these two events will result in SG CIB posting a loss for 2007.  Taking the necessary measures in the face of these massive losses, and in tandem with the Group nomination committee, the following managerial changes will take place effective immediately:

• GEDS : Christophe Mianné will revert to his position as head of GEDS.

• FICC : Olivier Khayat will take responsibility of FICC.

• CAFI : Jean-Luc Parer will take full responsibility of CAFI.

• RESS : François Boucher will take responsibility of the Global Resources Group.

At the request of our President and Board of Directors, to whom I offered to tender my resignation, I will continue as CEO of SG CIB and at the same time directly supervise our market activities (FICC and GEDS) as well as operations (OPER).

In spite of the impact of these crises, the Group will still post a positive net result for 2007 and the EUR 5.5bn capital increase launched today will allow us to strengthen our shareholder’s equity and maintain a strong rating, while continuing to pursue our development.

We must remember that our top priority is to serve our clients and maintain their trust, relying on the quality of the franchises that we have built over the past several years.

Given the current environment,  we must, at the same time, maintain very prudent risk management and use of capital.
The Group and SG CIB need everyone’s support – together and united – to get through this unprecedented crisis and, once the initial shock is over, to rebound together.

Let’s remain confident!

Jean-Pierre Mustier

This entry was posted by Helen Thomas on Thursday, January 24th, 2008 at 11:53 and is filed under Capital markets. Tagged with SocGen. Edit this entry.