SocGen's Kerviel - "hang on, I'll just write an email" Friday, February 08, 2008
Highlights of recent snippets from the FT to emerge from the Soc Gen saga
- At the end of the year Kerviel had made €1.4bn ($2bn, £1bn) in hidden profits for his bank, a sum equivalent to more than half the revenues of SocGen’s entire equities division
- On Friday 18th Jan compliance officers raised the alarm over a €30bn trade on Dax futures because it was far too large for the supposed counterparty, a medium-sized German brokerage called Baader. Kerviel produced apologies for booking it to the wrong counterparty and provided a false email to attribute it to Deutsche Bank
- Kerviel was able to enter false hedging contracts to make it appear as if he was taking minimal risks. By logging into the system under different names, he then cancelled the fake contracts before they were settled, replacing them with new ones. “He was always rolling one transaction into another. If he was ever caught, he just said it was a mistake and would start putting the trade somewhere else,”
- He created false e-mails by reproducing the format and header of e-mails he had received from clients, to rebuff any questions from the bank’s internal controls team
- SocGen’s human resources department alerted Mr Kerviel’s boss that he had not been on holiday for eight months except for four days in August, he was asked to take some leave. But Mr Kerviel told them December was the anniversary of his father’s death and he did not want to be alone, persuading his boss that he could wait until January. “With hindsight, this was a mistake,” admits Mr Martineau. Most investment banks require traders to take at least two consecutive weeks’ holiday a year, which limits the scope for concealing their positions.
- SocGen decided to close the €50bn position built up by Mr Kerviel as quickly as possible. It took one of the bank’s top traders three days to do so. Erick Tripoli, proprietary trading manager at Van der Moolen, the Dutch market maker said “It was horrible. Someone was selling a massive position by volume, not by price. When we heard it was SocGen, we just laughed, as no trader would do such a bad job.”
Labels: socgen
posted by John Wilson @ 1:49 PM Permanent Link
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1 Comments:
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At 3:41 PM,
Jeremy Farshore-Swimwell said...
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Is it really staggering? The fact that he falsified emails (effectively forging evidence), and created so many false trails to hide his positions and managed to get away with it for a period of time is not so surprising, or that shocking. Nor is it evidence of abnormal arrogance or complacency on the part of SocGen. Their systems ahd flaws and he knew his way around them. That's really not the point.
Indeed, most people seem to have missed the point about Kievel..sorry Kerviel.
What appears to be more strikingly stupid is that he and (according to his account) many others expected to gain substantially increased bonuses by trading outside their remit. No matter how sophisticated the controls, traders will always find loopholes if you link their bonus to the profits they make, without placing limits in keeping with their trading limits.
What scares me most is that most commentators have failed to pick up on this obvious incentive to cheat the system.
SocGen are far from alone. I know one Asset Manager who fails to see the danger in charging error losses to the bonus pool. They think they are creating an incentive to stop errors, but have obviously never even heard the phrase "unintended consequences".
