Late last year Societe Generale, or SocGen, was rocked by a trading scandal. Now its head honcho has to step down.
Fifteen years ago, Daniel Bouton moved from the government’s finance office to SocGen’s executive suite. Since then he’s presided over remarkable growth as the bank grew five-fold. In the process, SocGen became an equity derivatives powerhouse, and the stock rose about 10% per year.
But their risk management systems didn’t keep up with their business growth. A low-level functionary figured out how to hack into the control system, and suddenly poof when 5 billion Euros.
Now SocGen is looking at replacing their whole management team. And the larger lesson here is that bad things can happen to good businesses. And the only way to avoid these losses is to diversify, or spread out your risk.
Douglas R. Tengdin, CFA
Chief Investment Officer
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