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Societe Generale of France announces a massive loss caused by an employee's fraudulent trading. The trader identified in reports is described as a loner and computer genius.

By MSN Money staff with wire reports

We've seen this movie before: A rogue trader gets in over his head and loses billions for a big European bank.

This time the bank is France's Societe Generale, and the loss is an astonishing $7.16 billion.

The rogue, according to reports, is 31-year-old Jerome Kerviel, a futures trader, computer whiz and "loner" whose scheme was uncovered only as many of the world's stock markets posted huge losses in recent days.

SocGen said the trader used his in-depth knowledge of the bank's internal control procedures to cause a fraud "exceptional in size and nature." The bank is seeking to have him prosecuted.

The trader managed to conceal losses "through a scheme of elaborate fictitious transactions," the bank said. The fraud is forcing Societe Generale to seek $8 billion in new capital, the bank acknowledged.

SocGen, like many big banks, had big losses to deal with even before discovering the trader's losses. SocGen announced that it would write down $2.9 billion in subprime-related securities.

European markets fell on Wednesday as rumors about SocGen's write-downs circulated among traders. Some traders had worried that the losses would be as high as $40 billion.
CEO offers to resign
"For something like that to happen at any firm has to represent a massive breakdown" in internal procedures, Nasdaq Chairman Robert Greifeld said on CNBC this morning.

Other observers said the fraud highlighted banks' vulnerability.

* Video: More on Societe Generale's fraud

"Banks, despite the implementation of sophisticated risk-management solutions, are still under the threat that an employee with a good understanding of the risk-management processes can get 'round them to hide his losses," Axel Pierron, a senior analyst at research firm Celent, told Bloomberg News.

Christian Noyer, governor of the Bank of France, described Kerviel "a computer genius," and called the incident "an extremely serious fraud."

The trader was responsible for basic futures hedging on European equity market indexes, the company said. That means he made bets on how the markets would perform at a future date.

The trader had been betting that markets would fall but then changed his position at the start of this year to bet they would rise, Kinner Lakhani, an analyst at ABN Amro in London who specializes in Societe Generale shares, told the Associated Press.

Societe Generale CEO Daniel Bouton offered to resign over the weekend, but the bank's board refused to accept his resignation. However, Bouton and his deputy, Philippe Citerne, are giving up their salaries through June, Reuters reported this morning.

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Jean-Pierre Mustier, head of SocGen's investment banking division, said he didn't believe Kerviel made any money on the fraud. "Sometimes people don't know the size of what they are getting into," he told The Associated Press. Kerviel, who moved from a back-office job to the trading floor in 2006, was "very quiet and a loner," Yves Messarovitch, a spokesman for Societe Generale, said.

SocGen said that Kerviel likely acted alone but that to five people will be fired as a result of the losses.[font="Verdana"][/font]