PARIS, Jan 24: The biggest rogue trader scandal in history hit Societe Generale on Thursday as the French bank accused a junior employee of a fraud costing $7 billion.

France’s central bank and government scrambled to shore up confidence in the banking system after ‘SocGen’, France's second-biggest bank, said it had been the victim of massive and ‘exceptional’ fraud.

Its trading losses spiralled to 4.9 billion euros ($7.1 billion) as the bank tried to close out the rogue positions in Monday's sliding market.

The country’s top banker dubbed the trader ‘a genius of fraud’. SocGen declined to give a name, but three sources at the bank named him as Jerome Kerviel, 31, a trader on the bank’s award-winning equity derivatives desk earning less than 100,000 euros a year. Kerviel could not be reached for comment.

If fraud is proved, the loss will be the biggest caused by a single trader, dwarfing the $1.4 billion loss by trader Nick Leeson that broke British bank Barings, and the $2.6bn Sumitomo Corp lost in rogue copper trades in the 1990s.

It also eclipses a $6 billion-plus loss racked up by hedge fund Amaranth trader Brian Hunter and his team ahead of the fund's collapse in 2006.

“It was an extremely sophisticated fraud in the way it was concealed,” said Societe Generale Chairman Daniel Bouton, who offered to resign and was asked to stay on by the board.

Some investors wondered whether the bank’s manoeuvres had contributed to Monday’s market fall, and to the US Federal Reserve's decision to cut interest rates, but CNBC television reported a Fed source saying the central bank had not been aware of SocGen’s problems ahead of the emergency 75 basis point cut.Shares in SocGen, which has a market capitalisation of about 36 billion euros, fell more than 4 per cent to 75.81 euros.

Traders said the shares were cushioned from further falls after the French financial establishment moved quickly to shore up SocGen’s shattered capital.

One of France’s oldest banks but a world leader in free-wheeling modern financial derivatives, SocGen said the losses came to light at the weekend when it found that a junior trader had tried to cover up bad bets on the stock market.

Instead of beating a path to cash-rich sovereign wealth funds, as some US banks have done during the recent credit slump, SocGen announced a capital increase of 5.5 billion euros and said this had already been underwritten by other banks.—Reuters