Scorn for Banking Industry After SocGen Scandal

By Reuters -  |  Posted 2008-01-25 Print this article Print

Business leaders said they were aghast by the culture of banking and its excesses following revelations that a trader at French bank Societe Generale had lost $7 billion through possible fraud.

DAVOS, Switzerland (Reuters) - Business leaders said they were aghast by the culture of banking and its excesses following revelations that a trader at French bank Societe Generale had lost $7 billion through possible fraud.

"It's something that further damages the image of banking at a time when people are already very concerned about risks," Intesa Sanpaolo Chief Executive Corrado Passera told Reuters on the sidelines of the World Economic Forum.

SocGen revealed on Thursday a junior employee on its derivatives trading desk earning less than 100,000 euros a year had confessed to carrying out a sophisticated fraud, triggering 4.9 billion euros ($7.18 billion) in losses as his trades were cancelled in volatile markets.

On the crowded sidelines of the annual meeting of the World Economic Forum in snowy Davos, the news was met with incredulity and then scorn.

"I've got 200,000 employees working every day, many of them in factories, doing an honest job. What I do is about bricks and mortar," said a senior executive at one of the world's largest companies, who spoke on the condition of anonymity.

"But when I look at these bankers, I have to say that I'm a bit ashamed for them. There needs to be a little bit more common sense."

Mexican central bank governor Guillermo Ortiz said regulators should not rush to impose new, heavy-handed rules but added the scandal headlines and the U.S. subprime mortgage crisis risked damaging trust in the financial system.

"The worst thing is the damage to confidence," he told Reuters.

Another major central banker was overheard exclaiming in the crowded WEF-meeting corridors: "They said it was a lone trader! That's impossible! Haven't they ever heard of risk-control systems?"

Veteran bankers embarked on soul searching after the news, which forced some of Europe's most powerful financiers and members of the French establishment to bow before the world in shame.

"Is there something wrong with banking? I think so," said one head of investment banking at a major European group. "There is no longer a culture of banking. There's a culture of prima donnas. They all just want the power, they want it bigger and faster."

"It's all about these big giants who've gotten ahead of themselves," the banker said.


Outside the financial sector, business leaders did not withhold scorn for the high-flying bankers who are now being blamed for putting the brakes on a five-year global growth streak due to excesses in lending and lax controls.

"Greedy bastards?" mused one head of an international holding company, who declined to be named. "The guys in the real economy are out there managing factories and supply lines and product delivery. They're just chasing higher yields."

Economist Fred Bergsten, director of the Peterson Institute for International Economics, said the SocGen scandal raised doubts about the solidity of the financial system and compounded other threats to economic growth.

"One thought that they had their risk systems under control. This obviously raises fundamental questions about that," he said. "One has to look across the board to see if others aren't vulnerable to the same disease."

Heinrich Hiesinger, head of Siemens industrial unit, said the banking-sector fiascos of late risked damaging confidence in the overall economy. 

"We would have thought that their risk systems were more under control," he said. "If the trust has gone away from the market then our clients could stay away."

For full coverage, blogs and TV from Davos, see: uk.reuters.com/news/globalcoverage/worldeconomicforum2008

(Reporting by Thomas Atkins; editing by Sue Thomas)

Copyright Reuters 2007. All rights reserved. Users may download and print extracts of content from this website for their own personal and non-commercial use only. Republication or redistribution of Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks or trademarks of the Reuters group of companies around the world.


Submit a Comment

Loading Comments...
eWeek eWeek

Have the latest technology news and resources emailed to you everyday.