Question regarding Loss from Societe Generale Trader
IB
(Senior Chimp, 18
Points)
on 2/7/08 at 12:05am
Originally, this trader booked gains of 1.4 billion euros for 2007. After realizing the fraud that was committed, the impact was a 6.3 bn euro impact (so an overall loss of 4.9 bn euros). What would be the impact on each of the 3 financial statements? Thanks for the help.





quick dirty answer
i am not a specialist on the banking side... so I would give you the high level acctg entries... which should probably aroudn the lines of:
Cr. Cash Dr. Realized Losses on Investments (depending on the timing of the settlement, a reserve acct may be hit first as a buffer)
Then given that u dont meet the BaleII liquidity ratio requirements, u are going to get some cap infusion that will get you Dr.Cash & Cr. Equity (again depending on how the recap'n is structured different types of equity accounts might be used)
When u look at it in a nut-shell, this thing is just a timing problem... SG was supposed to generate $7.6B of profit for '07... which by itself should have been sufficient to cover the $7Bloss but given that the loss needs to be recorded and settled right away, the bank faced a cash crunch.