When attendees from a sovereign wealth fund panel in Davos emerged, it wasn't about this topic, until yesterday so hot, that they spoke. Instead, they focused on the woes on Societe Generale, which reported this morning that a fraud by a trader would cost the group 4.9 billion euros ($7.16 billion).

France's second-largest listed bank said it would raise 5.5 billion euros through a capital increase to strengthen its balance sheet, also affected by the global credit markets crisis.

Immediately, everyone started to reminisce about Nick Leeson, the British trader who in 1995 brought down merchant bank Barings after racking up huge losses.

"This will have huge reverberations," a banker at major european bank who was at barings at the time of its collapse said.

"I think the big issue is trust in financial institutions. First you had subprime, then the bond insurers and now this," the banker added.

Societe Generale, whose shares closed lower by 4.1 percent on Thursday, said it was in the process of dismissing the Paris-based trader.

The French bank's troubles may open opportunities for rivals trying to swallow it as consolidation talk is re-emerging.

"There are rumors about (Italian bank) Unicredit being interested in buying SocGen," the same banker said. "If I were Unicredit, right now I would pounce."

The news of the fraud came as a surprise, although rumors have swept the markets for a few days on the possibility that Societe Generale would have to face writedowns due to its exposure to the financial crisis.

Banks have had a bumpy ride since the credit crunch has begun in August last year, as investors still struggle to find out just how much money they lost because of their exposure to the subprime meltdown.

And they dominate the agenda of talks at the World Economic Forum where last year's optimism is long forgotten.

One delegate summed up the mood in Davos: "Investment banks are horrendous."

-- Reported by Kim Khan, written by cnbc.com

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