Societe Generale Research Paper

Societe Generale – Group #7

BUSFIN 4232

Spring 2015 (Session I)

Professor Pirim

Erik Johnson

Tallib Karaze

Mallory Mason

Sarah Tighe

Garrett Trebilcock

Introduction

There have been some substantial losses in the derivatives market since the mid-1980s, this report will discuss the circumstances in which Societe Generale took on a loss of $7.2 billion. In order to convey how an incident of such could transpire, we will discuss why this happened, how this happened, who is responsible and what we can learn from this event.

Overview

Eugene Schneider and a group of Private Paris bankers founded Societe Generale in France in 1864 during the midst of the industrial revolution. The company started as a deposit bank and an investment bank, however it did not take long for the company to take off. By investing in the metal industry they were able to establish regional banks all over France. Although Societe Generale faced some major setbacks during WWI and WWII, they were able to sustain their position in the market and thrived on innovation. In the 1980s they became a world-renowned leader in new hedging instruments that helped support the growth in equity derivatives. Continuing to 1985, they took on the online banking scene, allowing customers to access their accounts online. Then, in 1999, Societe Generale became the first bank in France to implement permanent bank account numbers. Currently 150 years old, the company is one of the largest European financial service groups, based in 76 countries and serving 32 million clients (Societe Generale, 2014).

        Societe Generale is comprised of three core businesses, Retail Banking in France, International Retail Banking Financial Services, and Corporate and Investment Banking. International Retail Banking is one of the company’s major growth drivers, which is focused on targeted acquisitions and organic investments in regions with high potential. The bank’s performance has only continued to flourish, primarily due to the performance of 2013, which paved the path for their rising market share. The company has proved their position as the world leader in equity derivatives, structured products, and natural resources, through innovative risk coverage solutions (Societe Generale, 2014). Nevertheless, this growth does not diminish the nightmare Societe Generale faced in 2008. While the United States was approaching the beginning of a major financial crisis, Societe Generale was facing some major issues of their own. Rogue trader, Jerome Kerviel, through a series of unauthorized trades, threatened to take down the bank.