French bank Societe Generale has uncovered a Paris-based trader who it says committed a fraud resulting in a loss of £3.7bn, according to reports.
It said the trader confessed and has been dismissed, and his managers have left the company.
The bank also announced a loss of £1.5bn following the US sub-prime mortgage crisis, but says it will still make a profit of up to £600m for 2007.
Trading in the bank’s shares has been suspended, following a drop of nearly 50 per cent in the past six months. The bank will need to seek £4.1bn in new capital to offset the losses.
It is expected to announce its full year results on February 21.
Societe Generale released a statement confirming the fraud, which says: “One trader responsible for plain vanilla futures hedging on European equity market indices, had taken massive fraudulent directional positions in 2007 and 2008 beyond his limited authority.”
It goes on to say: “As a result of this fraud, and in order to strengthen its capital base, the Group will launch a capital increase of £4.1bn, with preferential subscription rights, which has been fully underwritten by a bank syndicate.”