French banking giant Societe Generale admitted today that the fraudulent positions held by a lone "rogue trader," Jerome Kerviel, were actually worth tens of billions of dollars, significantly more than its previous estimate of $7.15 billion.
Now, some traders are speculating that the breathtaking losses could have helped bring down already jittery European stock markets, which took an unusually large dip after Societe Generale learned of the fraud and sold Kerviel's huge holdings.
"It's clear they had an enormous number of chips on the table and they were climbing all over that table to get the chips off on Monday and that certainly made things more unstable in the market," former U.S. Treasury Secretary Lawrence Summers said.
Kerviel has admitted the fraud, but his motives were "irrational," because he did not make any money from his financial manipulations, Societe Generale chairman Daniel Bouton said.
Societe Generale's massive losses were announced by Bouton in a letter to the bank's customers.
"Societe Generale Group has uncovered a fraud, exceptional in its size and nature," the bank said in a statement.
"The individual in question has been dismissed and legal action will be taken against him," Bouton wrote without identifying the suspect.
It was also announced that the managers and executive managers responsible for the trader will all be removed from their positions. Bouton himself offered his resignation, but this was refused.
The Financial Times described Kerviel as a Frenchman in his 30s who joined SocGen in 2000. Bank executives told The Associated Press his salary was around $145,000.
Jean Pierre Mustier, chief executive of the corporate and investment banking at Societe Generale, emphasized he did not believe the young trader had accomplices.
"I'm convinced he acted alone," Mustier said.
According to SocGen, the bank discovered this weekend that one of its traders "had taken massive fraudulent directional positions in 2007 and 2008" and he was able to conceal these through his "in depth knowledge of control procedures."
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.
Until last year, 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, said Kinner Lakhani, an analyst at ABN Amro in London who specializes in Societe Generale shares, citing the bank's management.
The bank's explanation of how it was flummoxed by the young trader has baffled some in the industry.
"I am sorry, but I have a hard time buying the fact that a trader was able to set up a 'secret trade' of 4.9 billion euros [$7.15 billion dollars] without anybody finding out," Ion-Marc Valhi at Amas Bank told the BBC.
It is one of the biggest frauds in banking history and believed to be the largest by a single person. It is almost five times the amount lost by Barings Bank trader Nick Leeson, who famously brought down the entire bank in 1995 after concealing losses that amounted to $1.4 billion.
"When these things come out, they always surprise you. People wonder why there were no controls in place to prevent this sort of thing from happening in the first place," Ruth Lea, an expert from the Center for Policy Studies, a London think tank, told ABC News.