MGMT 610 Risk Management of Societe Generale Company

1) Could the Breakdown Been Prevented or Minimized? Say How and give an example.

2) What Actions/Remediations(e.g., Company, Government and Public) were taken after the event occurred?Be specific for both questions.

Answers:

1. Could the breakdown been prevented or minimized

Société Générale S.A. is a French multinational bank and financial service company. Established in the year 1864 and has its headquarters in Paris, France. It is third largest bank in terms of size and sixth most largest bank in terms of its assets. It trades at Euro Stoxx50 stock market index and has over 450,000 employees worldwide (Clark, 2008). On 24 January, 2008 it lost around Euro 5.0 billion from fraudulent in future trading’s. The recorded loss is the highest in the history of all such losses made. One of its primary traders Jerome Kerviel spiraled various transactions in futures markets and sending the Bank no documents for such trades. However, such losses could have easily been prevented or at least minimized. Each trader is supposed to send regular updates of each transaction that they conclude for the Bank (Gilligan, 2011). Each future transactions was made for reducing the impact of risk of client’s by means of hedging, such measures were not taken for making profits. The trader made use of his computer and by hacking several IT features financed the hedging options, thus in case the Bank would have had sophisticated IT infrastructure to manage risks such loses could have been averted or at least reduced (Epstein, 2008). The risk management facility that was previously maintained at the Bank had weak control and monitoring over every aspect of the business, hence with proper monitoring and control over activities such trading activities could have been blocked altogether.   

2. Actions/ Recommendations

Accused trader from the financial scandal that made the Bank lose billions of dollars made the Bank responsible for his actions (Allen, 2008). While Police and lawyers interrogated and analyzed details from the deal that cost billions for which the Bank had to opt for refinancing and lose credit rating could have been easily averted. The following risk management techniques could have let the Bank avert such huge losses.

• Internal control mechanism for evaluating each trade conducted by a trader prior to its financing(Moodie, 2009).  
• Risk management techniques on its IT infrastructure that allows dynamic control.
• Control mechanisms within the Bank that previews all possible trades done by the Bank by its various traders.
• Limit of financing on its all trading members that prohibits from using such funds for trades concluded.
• Limits of trading on futures in terms of portfolios and not concentrating on a single fund avenue.
• Regular updating of various transaction and a checking procedure on the same.
• Updating of transactions in future and reporting the same to higher authorities. Keeping a type of record for every financial transactions made according to acceptable Accounting practices.  
• Overall risk analysis for various products and business aspects of the Bank and incorporating in procedure to mitigate or avoid the same. 

Reference Lists

Allen, S. (2008). Control lessons from the Societe Generale fraud: what patterns emerge from rogue trading incidents of the recent past?. . Bank Accounting & Finance, 29-35.

Clark, N. (2008). Société Générale posts record loss on trading scandal, subprime exposure. International Herald Tribune, 19.

Epstein, J. (2008). Security lessons learned from Société Générale. . IEEE Security & Privacy.

Gilligan, G. (2011). Jérôme Kerviel the'Rogue Trader'of Société Générale: Bad Luck, Bad Apple, Bad Tree or Bad Orchard?.

Moodie, J. (2009). Internal systems and controls that help to prevent rogue trading. Journal of securities operations & custody, 169-180.