Societe Generale Uncovers Massive Fraud

PARIS (AP) -- Societe Generale uncovered a $7.14 billion fraud -- one of history's biggest -- by a single futures trader who orchestrated a series of bogus transactions that spiraled out of control amid roiling markets this week, the French bank said Thursday.


Executives said the trader, a French man in his 30s, acted alone. CEO Daniel Bouton said the trader's motivations were "irrational" and that he may not have benefited directly from the fraudulent deals.

The bombshell announcement destabilized a major bank already heavily exposed to the subprime crisis and rattled the global banking sector. France's second largest bank said it will seek 5.5 billion euros ($8.02 billion) in new capital.

Trading in Societe Generale's shares, which have lost nearly half their value over the past six months, was suspended Thursday morning. Trading resumed midday and shares dropped 5.5 percent to 74.77 euros ($108.97)

Societe Generale said it detected the fraud over the weekend at its French markets division.

The trader had misled investors in 2007 and 2008 through a "scheme of elaborate fictitious transactions," the bank said. The trader, who was not named, used his knowledge of the group's security systems to conceal his fraudulent positions, the statement said.

The man confessed to the fraud, the bank said, and was being dismissed. His supervisors were to leave the group. Bouton offered his resignation but it was rejected by the board.

Bouton said the fraud was uncovered after the crisis on world markets began late last week, as the trader rushed to close fraudulent positions.

The man had worked for the bank since 2000 and earned a salary and bonus of less than 100,000 euros ($145,700), executives said.

"I'm convinced he acted alone," said Jean-Pierre Mustier, chief executive of the bank's corporate and investment banking, who interviewed the trader when the fraud was uncovered.

The trader was responsible for basic futures hedging on European equity market indices, the company said, making bets on how the markets would perform at a future date.

"Detecting the fraud over the weekend was problematic because world stock markets on Monday and Tuesday fell hugely around the world," said Janine Dow, senior director at Fitch Ratings financial institution group in Paris. "When the positions had to be unwound, the bank did that in a terrible market of falling equities."

"In hindsight, it was this guy's superior knowledge of the control system of every aspect of trading at the bank that allowed him to build up fraudulent positions and hide them," she said.

The fraud appeared to be the largest ever by a single trader. If confirmed, it would far outstrip the Nick Leeson trading scandal in 1995 that bankrupted British bank Barings. Barings collapsed after Leeson, the bank's Singapore general manager of futures trading, lost 860 million pounds -- then worth $1.38 billion -- on Asian futures markets, wiping out the bank's cash reserves. The company had been in business for more than 230 years.

The Bank of Credit and Commerce International failed after a 1991 scandal that led to claims by depositors and creditors exceeding $10 billion at the time.

Gilles Glicenstein, president of asset management at rival French bank BNP Paris -- France's largest -- said, "It shows that we are in a very troubled period for banks, and I think that it's in such troubled periods that difficult things happen."

"This is not good news for Societe Generale, but also for banks in general. It can create doubt, but at the same time in this period, we are making efforts to be transparent in order to give confidence back," he said at the World Economic Forum in Davos, Switzerland.

Axel Pierron, senior analyst at Celent, an international financial research and consulting firm, was stunned that a trader could be involved in such a massive fraud 13 years after the Barings Bank collapse.

"The situation reveals that banks, despite the implementation of sophisticated risk management solutions, are still under the threat that an employee with a good understanding of the risk management processes can getting round them to hide his losses," he said.

At Societe Generale, the fraud announcement came on the back of subprime-related difficulties. Subprime writedowns linked to the crisis in financial markets amounted to 2.05 billion euros ($2.99 billion), Societe Generale said.

The Paris-based bank said that with the fraud and writedowns, it expects net profit of 600 million euros to 800 million euros ($874 million to $1.16 billion) for all of 2007.

The Bank of France said it was immediately informed of the fraud and was investigating.

Societe Generale's full-year results will be announced Feb. 21.

AP writers Matt Moore in Davos, Switzerland, and Thomas Wagner in London contributed to this report

Booming Popularity of Branded Gift Cards

A recent survey about gift cards that carry the
American Express, Discover, MasterCard or Visa logo reveals that extremely high levels
of personal satisfaction are driving their triple-digit annual growth.

The survey, recently conducted by the Network Branded Prepaid Card Association
by Dan Horne, professor at Providence College and an expert on gift card
purchasing habits of consumers, found that more than 93% of consumers who buy
branded gift cards are satisfied with their purchase.

Branded gift cards carry the American Express, Discover, MasterCard or Visa logo. They
are sold in many retail stores and bank branches and can be purchased online. Gift
recipients can use them to buy the gift of their choice at merchants that accept the card
brand.

“Extremely high consumer satisfaction is clearly driving sales of branded gift cards,” said
Professor Horne. “The survey reveals that gift-givers choose branded gift cards because
they regard them as ‘thoughtful’ and ‘intelligent’ gifts and because they want ‘recipients
to get whatever they want.’ Half of gift-givers say that their card recipients ‘prefer to
receive branded gift cards over traditional gifts.’”

The survey estimates that 28% of American consumers purchased a
branded gift card this holiday season. This is double the number of consumers who
purchased branded gift cards last year.

o When asked to comment on a series of statements about why branded gift cards
are purchased, the most popular answer was for recipients to get whatever they
want (91%).

o A majority of respondents also indicated that branded gift cards are good for
recipients who like to shop (85%) and they purchase cards as gifts if they do not

know what the recipient would like or need (86%).

o Overwhelmingly, respondents suggested that branded gift cards are an intelligent
way to give a gift (76%).

Four Ways to Get Your First Credit Card

Eighteen is a liberating age. You're legally an adult. You can vote. And, you can get a credit card. As eager as you may be to get your first credit card, many credit card companies aren't so eager to give you one. Rather than putting in several credit card applications, target just a few companies that are known for giving credit cards to first-timers.

1. Credit cards for students: The sad truth is, credit card companies are more than willing to dole out credit cards to college students. If you're enrolled in college, you have a very good chance of getting approved for a student credit card. Be wary, credit card companies are notorious for preying on college students. Start with only one credit card, no matter how many other offers you get. I recommend CitiBank for this. They approve almost anyone, just remember to be on top of your spending.

2. The bank of your checking or savings account: If you've been responsible with a checking or savings account, you can try applying for a credit card at your bank. Talk to a bank representative about opening up your first credit card. Having an existing relationship will improve your chances at getting a credit card application approved.

3. A department store or gas credit card: Department stores and gas companies typically have easy credit card approval. This can make getting your first credit card less complicated. On the downside, they have high interest rates that make it expensive to carry a balance from one month to the next.
Tips For Using Department Store and Gas Credit Cards

4. A secured credit card: When your (lack of) credit history keeps you from getting a standard credit card, you can apply for a secured credit card. With a secured credit card, you make a deposit against the credit limit of the account. The bank holds the deposit just in case you don't make your payments as agreed.
How To Choose a Secured Credit Card

Intro to Credit

Remember when you were younger, how fascinated you were whenever you saw someone using a credit card. Back then, it seemed like credit cards were magical squares of plastic that could easily and conveniently be substituted for cash. If you haven’t figured it out yet, here’s one fact about credit that you must know: it’s not a cash substitute, but rather a loan that you must pay back with your future income.

What is Credit?
Whenever you make a purchase today with the promise to pay for it tomorrow, you are using credit. Having credit lets you make purchases when you don’t have cash available. Before a lender will allow you to use credit, it must first believe that you can be trusted to repay the amount of credit you use. This is considered financial trustworthiness.

Lenders use a number of factors to determine your financial trustworthiness. The most commonly used factor is your credit history. How you have used credit in the past – your credit history – is considered to be the best way to predict how you will use it in the future. Your credit history is reported in your credit report and credit score. When you are a new creditor and do not have a credit history, the lender might use other factors such as employment and salary to gauge your financial trustworthiness. Or, the lender might require that someone who does have favorable credit agree to repay your charges if you fail to do so. In this case, the two of you share credit.

How Does It Work?
To establish credit with a financial institution, you must first make an application. The lender will use identifying information, like your social security number, to look up your credit history. If the lender determines that you are a trustworthy borrower, then it will extend credit to you. Once you have been approved for credit, the lender will give you guidelines, or terms, for using your credit. The terms include, but are not limited to, how often you should send payments for purchases, what happens if you are late on a payment, and the cost of using credit.

Usually, the lender establishes a maximum amount of credit that you can use, a credit limit, based on your credit history. Your credit terms will outline what happens if you exceed this limit. In most cases, there is a monetary penalty.

When you’ve been approved for credit, the lender provides you with a way to use this credit, e.g. a credit card. Periodically you will receive a billing statement from your lender detailing purchases you’ve made, interest charged, minimum payment amount due, and payment due date. Per your agreement with the lender, you must make payments by the due date to avoid penalties.