Societe Generale's ability to lower risks is doubted, Alexander Metzger says

30 January 2008 (09:17)

'Whatever one may think of the bank’s financial losses, Societe Generale's reputation damage can hardly be questioned. In fact, the bank’s very ability to deliver the goods, that is, to lower risks, is seriously doubted,’ Management Company’s Investment Director Alexander Metzger says.

Societe Generale, France’s second largest bank, lost 4.9bn ($7.1bn) due to one of its traders’ gerrymandering related to European stock exchanges’ indices futures. An 80% decrease in the bank’s annual profit is expected.

'As it happens, any commercial bank is selling its customers its ability to lower the individual investors’ risks compared to their independent investment activity. And now these customers realize that not only do their risks fail to decrease, but they actually soar. Everybody is bound to start thinking less of the bank under these circumstances,’ Mr. Metzger says.

'Even if you buy this bank’s argument that this was a single trader’s personal fault, this raises even more discontent. The bank thus confesses it didn’t have even the primitive idiot proof technology, which is a clear sign of some very poor risk management. All this boils down to the following: the bank is in for both direct and indirect financial losses, both of which are sure to be massive,’ he added.
'To make matters worse, the whole incident doesn’t make people trust banks more, as this business turns out to be full of risks of all kinds imaginable.’

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