SocGen's Bouton says bank to overcome "shock": paper
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Societe Generale Chairman Daniel Bouton told a newspaper the French bank would overcome its "shock" at having discovered an alleged $7 billion euro (10.3 billion pound) internal fraud.
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French bank Societe Generale described Sunday how one of its traders allegedly carried out a $7.2 billion (&#8364;4.9 billion) fraud, how the loss came to light and what it is doing to ensure such a case does not recur.
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The huge losses reported by French bank Soci?t? G?n?rale, apparently caused by a rogue trader with inside knowledge of the bank's procedures, don't necessarily point to an IT systems failure but rather to poor management of those systems, analysts say.The bank has accused 31-year-old employee Jerome Kerviel of creating a fraudulent trading position in the bank's computers that ultimately caused it to lose around ?4.9 billion ($7.3 billion).Kerviel achieved this by, among other things, misappropriating computer passwords, the bank said. It has revealed few other technical details of what caused the losses.Management of passwords, including rescinding the old passwords of employees who move to different positions within the bank, or modifying the level of access those passwords allow, is often a task given to the lowest-level IT worker."It's dull and routine 99 percent of the time, but a vital backstop," said Bob McDowall, senior analyst at the TowerGroup. Senior IT managers should conduct more frequent reviews of password policies, he said.In some cases, it may not have been the security of the passwords themselves that posed a problem, but rather the access those passwords allowed, said Ian Walden, professor of information and communications law at Queen Mary, University of London.Organizations tend to think of access as being binary in nature: you get access to it all, or you don't, Walden said. In reality, there are many more levels of access. "In modern, complicated systems, the granularity has to be much more sophisticated."To make the best use of systems with advanced access controls, the IT department must have a thorough understanding of how the business works and where there is risk.IT departments and business managers have yet to find a way to wrap security into business processes so it is not an impediment, Walden said."IT in a company is not given a sufficient status," Walden said. "What's shocking is you would have thought that the financial sector was more sophisticated than this, but it still tends to be the case that security is an add-on and a block, something you've got to live with but you don't have to like, rather than being viewed as an integral part of the business structure."Workers should be able to do their job without having to share passwords when someone goes on holiday, and the IT department should not make it harder for people to perform their duties, Walden said.In one extreme example at telecommunications company BT, one employee didn't have the right to use a computer at all, but he found it helped him do his job, Walden said."By the time he was found, he had 90 passwords of different employees," Walden said.It's possible that financial institutions could use biometric systems, such as fingerprint scanners, to provider an added layer of security, McDowall said. Those systems, however, are expensive. Also, the sometimes-finicky fingerprint scanners may not be appropriate in a frantic trading environment, McDowall said.Questions remain about how Kerviel's losses could be so high given his job as relatively low-level trader. But Kerviel's career progression in 2005 from the bank's back office to the front office -- where he would have had access to client accounts -- is also troubling since he would have gained greater knowledge on the bank's inner controls, McDowall said.As an arbitrage trader, Kerviel made money off price differences between different financial products. Soci?t? G?n?rale said Kerviel balanced real and fake trades in order to avoid setting off internal alarms.Kerviel has been described in some press reports as a computer genius. However, most attackers used unsophisticated methods for exploiting systemic vulnerabilities in applications, processes and procedures, according to the 2005 "Insider Threat Study" by Carnegie Mellon Software Engineering Institute.That report notes that sophisticated tools are also used in some attacks, which would demand that internal financial systems need to be designed on a more defensive footing.Programmers should code under the assumption that a hacker or employee will use every means in order to break in, said Ben Rothke, senior security consultant at BT's International Network Services."The underlying issue is that many systems are designed to stop honest people from making mistakes, but do not take into account those with malicious intent," Rothke said.It makes insider jobs one of the toughest to defend against. The psychological profile of an insider tends to be a disgruntled employee who feels wronged by the company, according to the Insider Threat Report.That in turn can lead to a suspicious behavior such as staying late at work, which paradoxically might only signal a committed employee."It's always the insider," Rothke said. "It's often harder to steal $10,000 from a bank than $10 million."
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France's economy minister said Societe Generale, reeling from losses blamed on a rogue trader, is in crisis and may need to ditch its chairman.
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French bank Societe Generaleâs third-quarter profit rose a forecast-beating 10 per cent on consumer banking growth, gains in investment banking, and a sharp fall in bad debt provisions, it said on Tuesday.
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Societe Generale is in crisis, France's economy minister said on Tuesday of the bank hit by losses piled up by a rogue trader, questions over its leadership, takeover speculation and a falling stock price.
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French bank BNP Paribas is "thinking" about a possible takeover of its crisis-hit rival Societe Generale, a spokeswoman said on Thursday.
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French bank Societe Generale disclosed one of the biggest alleged frauds in financial history on Thursday, adding to a wave of gloom surrounding world markets battered by credit market losses.
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The supervisory board of Societe Generale has voted unanimously to keep Chairman and Chief executive Daniel Bouton at the head of the French bank, a spokeswoman said on Wednesday.
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Exchange officials warned Societe Generale about rogue trader Jerome Kerviel's deals late last year, a Paris prosecutor said, piling pressure on the French bank to explain why the trades were not discovered earlier.
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The Bank of France has warned that globalization could aggravate inflationary pressures that would justify greater vigilance on monetary policies.
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French bank Societe Generale announced Monday the launch of a capital increase of 5.5 billion euros (8.0 billion dollars) as well as an additional 600 million euros in losses due to the subprime crisis.
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The head of French bank Societe Generale  has hired investment banks to advise on the possibility of a merger with larger domestic rival BNP Paribas , Les Echos newspaper reported on Friday.
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Societe Generale came under mounting pressure on Friday to give a full account of how a rogue trader managed to dupe his supervisors and run up a $7 billion loss.
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Societe Generale faces growing  embarrassment after it emerged the French bank was warned last  year about the suspect activities of Jerome Kerviel and its key  fraud accusation against the 31-year-old trader collapsed.
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Scandal-hit Societe Generale shares the plight of people who take out an insurance policy to cover the remotest eventuality only to find it pays out a pittance, the French bank disclosed on Monday.
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jumped on Friday after a report that fellow French bank Credit Agricole had hired advisers to study a possible approach.