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SocGen’s big loss in 2008


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An analysis (ppt) of SocGen's loss in 2008- by students of Era Business School, New Delhi (PGDM 2012-14)

Published in: Business, Economy & Finance
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SocGen’s big loss in 2008

  1. 1. Era Business School, New AJ; Ajay K Raina By Aman Chauhan (0121pg023) & Col Ajay K Raina, SM (0121pg014)
  2. 2. Actors and the Storyline • Société Générale is one of the oldest banks in France. • Founded in 1864. • Nicknamed SocGen (pron ounced "sock jenn"). • HQ in Paris. • France's third largest bank by total assets. • A universal bank split into three main divisions:– Retail Banking and Specialized Financial Services – Corporate and Investment Banking (Derivatives, Structured Finance and Euro Capital Markets); and – Global Investment ManagementNew Services Ajay K Raina Era Business School, and AJ;
  3. 3. Era Business School, New AJ; Ajay K Raina
  4. 4. Theme : Overstepping the Brief • 3 categories of traders, each with her own motive. • Lines crossed if a trader who has been mandated to churn in one category, steps into any of the other categories. • Intrude, from the absolute safety of one into costly affairs of second and worse into dangerous arena of third, and spell disaster! Era Business School, New AJ; Ajay K Raina
  5. 5. What Happened? • J Kerviel joined SocGen in 2000. • 2005- Mandated to look for arbitrage opportunities between DAX, CAC 40 and Euro Stoxx 50 indices. • To err is human especially when temptations are huge. • Creativity at work – fictitious trades. Portfolios A&B. • Unhedged positions in tens of billions of Euros. • Remember 2007/2008… fishing in troubled water! • 2008 – over a period of three days, bank unwound his positions for a loss of €4.9 billion (or US$7.2 billion). Era Business School, New AJ; Ajay K Raina • The biggest till then.
  6. 6. Going Gets Tough • It had happened in Jan 2008. • Credit rating brought down; CEO resigned. • March 2008 – SocGen lost a case against a Turkish Company who had acknowledged a consignment of 3250 Kg of gold instead of 15000 Kg as claimed by SocGen. • March 2009 – AIG starts to sink, taking SocGen along with payment obligations of $ 11 Billion. • October 2010 – Jerome Kerviel sentenced to 05 years imprisonment and obligation to pay €4.9 billion to SocGen (3 yrs; appeal pending+ reverse suit failed) • Euro crisis 0f 2011 saw share falling by 57% after a Era AJ; Ajay K Raina wrong media news. Business School, New
  7. 7. The Tough Gets Going • SocGen sought €5 billion finance to tide over 2008 crisis. • US govt’s bailout for AIG in 2008, averted $11 Billion loss. • Successfully sued The Mail for the news article. • Huge transformations in functioning. • Posted profits in 2010 after two years. • Was one of the four (out of 91) European banks to clear stress test in 2010. • Stock rose to new high of € 52 in 2011-12, after touching low of € 18 in 2009 (now = €42). Era Business School, New AJ; Ajay K Raina
  8. 8. Era Business School, New AJ; Ajay K Raina
  9. 9. No Lesson Too Small • Utmost important to define unambiguous risk limits for traders. • Monitor the traders once risk and limits defined. Era Business School, New AJ; Ajay K Raina
  10. 10. From The Economist SIR, • Jérôme Kerviel is in trouble because without authorisation he used Société Générale’s money to bet on European markets, losing his employer some $7 billion. • But imagine the embarrassment had Mr Kerviel made a profit of $7 billion, or possibly double that, if the markets had moved differently? • The bank would have had to discipline, dismiss and pursue for fraud an individual responsible for a huge increase in net profits and a concomitant leap up the banking league table. ……….Michael Acott (Johannesburg The Economist Letters, February 2nd, Era Business School, New AJ; Ajay K Raina 2008)
  11. 11. Era Business School, New AJ; Ajay K Raina