How not to make money

By anyone’s reckoning €5 billion is a heck of a lot of money for any company to lose, but that’s just about the sum – give or take the odd centime – that Jerome Kerviel reportedly cost his bank, Société Générale, last week.

The 31-year-old futures trader had been betting on what direction the stock market would take and committed more than €50 billion of the bank’s money in purchases.

Every times traders buy they are supposed to balance their activities with an equivalent sale but apparently Kerviel had the know-how to fool the bank’s safeguard system and run up acquisitions of gargantuan proportions.

Finding itself in deep doo-doo, and overcommitted to an extent that even surpassed the size of France’s annual budget deficit (€35 billion) the bank sold massively just days after the “fraud” was discovered and in the process had to face up to the largest single rogue trader loss ever.

Société Générale, one of France’s major banks, compounded the whole mess by trying to cut its losses on exactly the same day as global markets took a tumble and the value of shares plummeted worldwide.

Now it’s not the first time a bank has been massively fiddled by one of its employees. Briton Nick Leeson notoriously managed to bring Barings Bank to its knees back in 1995, doing much the same thing.

But the amount involved (four times that of Leeson’s losses) and the fact that it happened to a bank with a reputation for being such a stickler for security, has shaken the financial services industry this side of the channel and of course provided fodder galore for the country’s hungry hacks.

Even though Kerviel maintains he was working alone, many analysts are questioning whether it was in fact possible for him to run up such enormous risks without the knowledge of his superiors.

The general perception is that even if he were not exactly given the green light to act in the way he did, his bosses must have been turning the proverbial blind eye.
Not so, claims Société Générale’s chief executive, Daniel Bouton whose offer to step down was rejected by the bank’s board. He insists Kerviel was acting alone without anybody else’s knowledge.


Hmmmn. Interesting that the furore over the size of the alleged fraud conveniently detracted public and media attention from a sizeable hit Société Générale has taken in recent months in the sub prime mortgage investment fiasco currently cutting swathes into banks’ profits around the world.

If Bouton’s tendering his resignation was rejected, that of several other executives was accepted, surely implying an admission of the bank’s complicity in the whole affair.


For the moment though Kerviel is being portrayed as a rogue trader. A computer geek who had somehow lost touch with the real world and was able to play out his betting fantasies in a virtual “futures” reality.

He had an in-depth knowledge of the banks rigid systems of controls as a result of several years spent working in exactly the department responsible for implementing those checks before becoming a trader in 2004. In other words he knew how to beat the system.

But Kerviel wasn’t even a high money earner, and reportedly not “gambling” for personal financial gain. With an annual salary of around €100,000 – far less than the millions earned by high-flying traders - he simply wanted peer recognition as being excellent at his job and boost his annual bonus. So his defence currently goes.

Somehow this story feels as though it has longer legs to it.

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