A leading French bank has revealed that an individual trader has defrauded it of several billion dollars, in one of the largest losses in banking history. For VOA, Lisa Bryant has more on the story from Paris.
The French banking giant, Societe Generale, says a futures trader defrauded it of more than $7 billion through a series of bogus transactions, and it has filed a criminal complaint. Although the amount is huge, this is hardly the first time a French bank has been mired in fraud. Another top bank, Credit Lyonnais, also struggled with major scandals more than a decade ago.
Ali Fatemi, dean of the business school at the American University in Paris, sums up the stakes. "I don't think this in itself is going to exacerbate the situation in Europe," said Fatemi. "It is an isolated incident based on what we know now. If the level is wider than what has been made public, that's a different story. But right now, it's a side story that is not that important."
But the disclosure comes during a week in which stock markets around the world are reeling from fears of a downturn in the American economy, triggered in part by a subprime crisis in the United States housing market. The bank revealed that it will report a near $3 billion loss stemming from bad investments in the U.S. subprime mortgage market.
European markets have also experienced wide swings, particularly after the European Central Bank indicated would not follow the U.S. Federal Reserve and cut interest rates.
There is concern that another struggling European bank will stoke the fears. "Basically the subprime problem is not limited to the U.S.," explained Fatemi. "It's a worldwide phenomenon that we're going to see more and more of as time goes on."
Fatemi believes central bankers around the world need to coordinate their reactions to the crisis.
As to Societe Generale, the bank's chief of corporate and investment banking says the trader was acting on his own and is being dismissed. Sources at the bank identified the employee as a man in his thirties who was earning less than $150,000 a year.
It does not appear, for the moment, that the Societe Generale scandal and economic jitters will negatively impact the center-right government of Nicolas Sarkozy, who is already suffering from plummeting popularity in the polls. But political analyst Olivier Rozenberg, of the Institute of Political Studies in Paris, says that may change. "I don't think Sarkozy will be blamed for this problem," said Rozenberg. "But of course, if the economy gets worse and worse, then Sarkozy will be blamed for that."
Mr. Sarkozy's government is advocating a series of reforms to invigorate the French economy. Economists like Fatemi, of the American University of Paris, hopes he will stay the course.