Posted on 01/30/2008 12:14:00 PM PST by GovernmentShrinker
"Bankers have confirmed that at the end of last year, Jerome Kerviel had generated a colossal hidden profit for the bank of 1.4bn euros," Mr Peston said. "Among the great mysteries of the Kerviel affair is how the French bank could have failed to notice a profit of that size."
(Excerpt) Read more at news.bbc.co.uk ...
Ping
This guy makes Leeson look like a three card monty dealer.
This is the guy who was responsible for last weeks crash.
Indeed, and he’s beginning to look awfully good by comparison to the bigwigs who run SocGen and the French central bank. His ethics are about the same, but his brains seem to be much more impressive. I sense a growing likelihood that Kerviel won’t serve a single day in prison, mainly because European business and government culture is such that nobody’s going to put Bouton, Noyer, Citerne, Mianne, et al in prison, and it would be politically impalatable to imprison Kerviel while those guys are playing golf and sunning themselves on the Riviera.
Not the way I see it. He was doing what his bosses wanted him to do and knew he was doing. Who was he to challenge the status quo, when he had the lowliest educational and business pedigree on the trading floor, and had only been a trader for a couple of years? The big guys get the rap.
I think a more likely scenario is that his actions were done with the knowledge of his bosses, who when they saw they were up a billion, tried to figure out how to skim it for themselves. Then by the time they were ready to act, the market had turned and the bosses couldn’t admit to why they had not pulled the plug on the guy earlier, and made the little guy take the fall
I wouldn’t discount that possibility. Their decision to start dumping the position on the first trading day after an Asian market swoon and with the US markets closed is simply inexplicable under any scenario even remotely resembling the big guys current official version of events.
BTW, this BBC News business editor has a blog, where he apparently posts the same articles that are on the BBC News website, but they’re drawing long comment threads from well-informed and articulate posters. See this article/thread from 2 days ago:
http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/01/socgen_unhedged.html#commentsanchor
How much of a “rogue” was he if management really didn’t want to know how he made profits?
That’s the whole point. He wasn’t. And Bouton, Noyer, and a handful of their pals are just about the only people left who are claiming he was. The international financial media and its highly placed sources (quite a number of whom are speaking for the record now), along with the judge who declined to charge Kerviel with fraud, and President Sarkozy, are clearly not buying management’s story.
THANK YOU for that link. Excellent read so far.
I have my suspicions that not only was Kerviel low on the totem pole of this inside operation, it was also not of his genesis, and that whoever was the creators of this scheme were also using the profits as a slush fund. Further, the slush fund was probably making political donations to the old guard of the RPR for various reasons. All speculation, but it can’t be far from the truth.
I suspect (and I am not alone) that the bank’s senior management was hoping to use the big paper gains from Kerviel’s positions (and probably of other traders as well) to offset some of their subprime mortgage related losses, which they had only recently announced they expected to be considerably smaller than the number they were preparing to report at the time they “discovered” Kerviel’s positions. That plan fell apart when the market shifted and the huge paper gains quickly turned into huge paper losses.
But if either side of your hedge bet tells you they can't deliver, you are phenomenally screwed, to the extent that a few hedge trades that go bad can cascade into a takedown of the whole financial system
Sounds like a decent trader. I would hire him, so long we had strict stop-loss rules in effect. The funny thing is, if Societe Generale had simply waited until after the Fed announced its 75 emergency cut and subsequent market rally, their loss would have been cut nearly in half.
The "crash" began well before last week. I had been short since December 12th.
What a story. If he managed to squirrel away one tenth of one percent, it’s a pretty penny.
About the only thing I believe out of everything Bouton is saying (and I believe it mainly because it matches what Kerviel is saying) is that Kerviel wasn’t pulling money out of this scheme directly. He was bucking for a much bigger bonus than last year, and in fact had already been told he would receive a bonus of EUR 300,000, which is quite a boost, since his total salary and bonus for the previous year was reportedly about EUR 100,000.
I suspect his methods weren’t terribly different from those of other SocGen traders in products where high volumes of supposedly hedged positions are the norm. If SocGen’s management department had gotten a sudden urge to seriously check out what these traders were actually doing at the end of December, instead of being forced to do so in mid-January, probably some other trader would have shown a massive loss that wasn’t being reflected on the official books (probably not as massive as Kerviel’s turned out to be, due to different market conditions, but still massive), and Kerviel would have ended up the unsung hero, as management breathed a sigh of relief upon discovering that the huge secret loss was easily offset by Kerviel’s huge secret gain. And we never would have a heard a word about any of this. Net losses of a mere half billion or so would just have been vaguely attributed to the larger morass of “losses on subprime mortgage derivatives”.
Kerviel’s chances of finding future employment in the financial world seem a good deal brighter than those of the key SocGen management guys above him. It looks like at worst he was an insecure and eager-to-please young trader who followed the example set by the other more senior traders, and by the senior managers who oversaw the trading operations, all of whom had the traditional credentials which the French business world views as impressive. Why the he!! wouldn’t the kid from the third rate b-school, who’d made the improbable leap from the middle office to the trading floor, try to “do as the Romans do”? The choices he made, in the context he made them in, are a heck of lot more defensible than those of the SocGen bigwigs.
If I was asked to find a spot for him in the big international financial institution I work for, I’d be inclined to put him in a financial markets risk management position, but pay him like a successful trader (to help get him to drop the dream of being a big-time trader and focus on being a risk manager). Fat salary, fancy title, corner office, plenty of vacation time, and the opportunity to earn huge bonuses on a deferred basis if the trading operation stayed squeaky clean.
It’s a fascinating story! Books and movies shall come.
Indeed they will. I suspect Kerviel will end up making a lot more money as a celebrity than he ever would have made as a trader.
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