Mon Dieu - SocGen gets hit by rogue trader

SocGen has just reported that it has uncovered a "fraud" by one of its traders which will have a €4.9bn ($7.16bn/£3.1bn) negative impact on the group, France’s second-largest listed bank. The Bank's shares have been suspended.

Apparently the London based trader, who worked in Equity derivatives, took some massive bets over a number of months on European Share Indices that went horribly wrong. Amazingly he was using plain vanilla futures and covered up his trail with a series of fictitious transactions, which he was able to conceal because of his familiarity with internal controls from his past employment in the Middle Office.

Yikes. That is a serious loss of internal control.

SocGen press release is here

UPDATE : Hurrah. The latest rumour is that the trader is apparently Paris based and not London.

UPDATE : Confirmed by the FT. The rogue trader is Jérome Kerviel, a Frenchman in his thirties who joined SocGen in 2000. He worked for three years in the bank’s back office before being promoted two years ago to the Delta One trading desk, handling proprietary deals in futures for European stock indices. He was based in SocGen’s Paris headquarters at La Défense.

The bank said it had no more exposure to the trader’s positions, which were identified and analysed on January 19 and 20 and then unwound just as stock markets crashed unexpectedly around the world on January 21

Jean-Pierre Mustier, head of investment banking who had been seen as a potential successor to Mr Bouton, said the position occupied by the rogue trader was only expected to generate €20m of revenue a year. “The specific pattern of his transactions was that they used fake transactions rolled on a permanent basis,” said Mr Mustier. The fraud was discovered after the trader made an error with a fictitious counterparty. Its extent became clear over the weekend, when the bank‘s management interviewed Mr Kerviel.

SocGen said that Mr Kerviel was responsible for trading futures on European equity market indices, and had taken “massive fraudulent directional positions” in 2007 and 2008, many of which had made a profit in 2007. It was positions he had taken since the start of the year that caused the losses.

Asked why it had not revealed the details of the fraud earlier, Mr Bouton said the bank could not have brought charges earlier because if it had done so, the scale of his exposure could have leaked, with serious consequences for the company and the wider market.


The timing of the unwind was either incredibly unlucky or simply kicked off or added to momentum in the market. Interesting that this reportedly junior prop trader trading vanilla index futures with only two years of experience was expected to be able to generate €20m of revenue a year. Mr Kerviel’s annual salary - including bonus - was less than €100,000.

posted by John Wilson @ 8:42 AM Permanent Link newsvine reddit



2 Comments:

At 9:31 AM, Blogger Hawkeye said...

One wonders if the severance process in the trader's case includes the guillotine. I am sure the bank's management wishes it could!

 
At 10:13 AM, Blogger John Wilson said...

Hawkeye, did you see that the FT's Lombard column by Andrew Hall has an amusing comment piece saying Alistair Darling must thinking “Thank God he’s not British”.

 

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