He lost his bank £3.7bn. So was it his fault the markets crashed?
theguardian wrote:
A brilliant young rogue trader, who spun an elaborate web of fake transactions from his desk, has cost France's second-biggest bank €4.9bn (£3.7bn) in what appears to be the largest-ever fraud by a single trader.
Société Générale was last night struggling to shore up confidence in the banking system after the huge fraud was conducted undetected by the junior trader at its headquarters.
Jerome Kerviel, 31, deemed "a genius of fraud" by France's top banker, caused five times the financial damage of the notorious rogue trader Nick Leeson, who sparked the collapse of Barings Bank in 1995 with losses of £800m.
The discovery at the weekend of what SocGen deemed an isolated fraud of "unprecedented size" caused concern in a market already reeling from the sub-prime crisis. There was astonishment at how a junior trader on the bank's award-winning derivatives desk, described as both "brilliantly intelligent" and a troubled Walter Mitty character, could create fictitious accounts and wreak havoc. The young trader appeared to have acted alone and reaped no personal financial benefit. "[It's] everyone's worst nightmare," said Richard Fuld, chairman of the rival bank Lehman Brothers at the World Economic Forum in Davos.
The City of London was yesterday awash with rumours that SocGen's desperate race to clear up the damage and unravel Kerviel's trading positions were at the heart of the stockmarket turmoil on Monday when share prices across Europe crumbled by 7%. Even the insistence of the French prime minister, François Fillon, that SocGen had "nothing to do with the situation on the financial markets" failed to stop the gossip.
SocGen insisted it would weather the storm and still post €800m profits for 2007. But news of the fraud could not have come at a worse time, with investor sentiment already fragile and confidence battered. "How will we [the market] ever get investor confidence back?" asked analysts at the investment bank Dresdner Kleinwort in a research note.
At SocGen's giant glass tower in the Parisian business district of La Défense, where Kerviel worked, the normally sedate corridors yesterday thronged with people in crisis management.
The trader, who joined the bank in 2000, aged 23, was extraordinarily sophisticated and technically proficient. In his first job, he started out developing the intricate computer systems used to control the positions that traders across the bank could take out in markets around the world. To try to control risks, it is now commonplace for each trader to be given a limit on the positions they can take. The SocGen computer was regarded as a hi-tech piece of kit, the best in the business for the best derivatives house around.
But Kerviel knew how to manipulate it. He was moved to a trading job in 2005 to work on a desk known as Delta One. Kerviel had a junior job as a hedger - essentially paid to reduce the bank's risk by taking out opposite positions to the ones being run by the traders. His salary was not in the stratosphere of high-flying City traders. He was on around €100,000. His personal trading limits would have been small, in the tens of millions of euros.
Around December, he seems to have removed all the limits on his personal trading positions and created fictitious customer accounts. Through December he seems to have taken out a series of short positions - essentially betting the markets would fall - and closed them all out so that by the end of the month he was flat. In January, though, he decided to do the opposite, buying the markets through futures contracts in the expectation that the markets would rise. They did anything but and he seems to been got caught out.
Kerviel was found out at the end of last week when one of his trading positions popped up on SocGen's internal system as being over his trading limits. He immediately confessed to senior executives.
Last edited by Varegg (2008-01-25 08:02:49)
Wait behind the line ..............................................................