SocGen reports small annual profit despite mass fraud

Cyprus not to be affected by crisis

 

(Paris, February 21, 2008) Société Générale reported a small annual profit (net income) of EUR 947 mln on Thursday despite a massive operating loss of EUR 4.9 bln owing to the now infamous rogue trader, Jerome Kerviel, or what the bank is referring to as “an exceptional fraud”.

“This result would have been EUR 4.2 bln had we not had the fraud,” co-CEO Philippe Citerne told journalists at a press briefing for journalists in Paris.

In 2006 SG posted an annual profit of EUR 5.2 bln.

The profit allowed the bank to maintain its boast that “the bank has never had a single year in the red”, in the words of Jean-Louis Mattei, Head of International Retail Banking.

However, the picture for the fourth quarter was very different, with the net loss amounting to EUR 3.4 bln compared with a profit of EUR 1.9 bln in Q4 2006. This was primarily as a result of an operating loss of EUR 4.7 bln.

Asked whether SocGen’s subsidiaries abroad would be affected by the fraud crisis, Mattei said “The crisis…does not undermine in any way the support SG provides to its subsidiaries”, referring also to the EUR 5.2 bln capital increase which was launched on the same day the results were announced.

The capital increase is being carried out partly in order to make up for a EUR 2.6 bln revenue hit from EUR 2.6 bln revenue hit from the US sub-prime mortgage market.

The capital increase will bring the group’s capital ratio to 8% from above 7% previously.

With a police investigation still ongoing, Citerne was reluctant to go into details of how the bank was adapting its internal systems to ensure that such a massive fraud could never take place again.

However, privately senior SG officials told the Financial Mirror in Paris that risk adjustment policy had been tightened.

If one assumes that SG’s traders will be more risk-averse than others this year, this could have a negative impact on profitability for 2008, which senior officials are calling a “transitional year”.

After falling on Monday SG’s share prices was slightly higher by lunchtime on Thursday.

 

Fiona Mullen