01.29.08
dihard: Rogue trader lost $7.2B for Société Générale. Here’s how.. His crime – he bet on the strength of the European market (trading futures in the European equity market indexes). Jerome Kerviel didn’t hedge his bets, the European market fell, and lost $7.2B, the largest individual trading hit in banking history (which is largely responsible for the Fed’s emergency cut last week to prevent a stock market meltdown). Yeah okay, he may have faked his books to make them look balanced to avoid interference from his supervisors. He may have even faked emails or used his colleague’s information to conduct fake trades. But this guy would have been a hero if the markets hadn’t turned against him - no questions asked.. In fact, at the end of ‘07 he was doing swimmingly, with gains for the bank totaling $2.2B. Unfortunately, when the European market fell last week, so did his career. But there seems to be something fishy going on here: It just so happens that on the same day Kerviel’s loss and pending investigation was announced, SocGen issued a $3B write-down due to exposure to the US subprime market. It went virtually unnoticed. It took the bank 15 days in an organized market to detect the fraud. This type of problem is typically caught within 2-3 days. In order to make fictitious trades, one needs a counterparty and it’s pretty difficult to set up secret trades worth billions without anyone finding out. Per SocGen’s CEO, Kerviel set up a “single, enormous, fictitious’ company to carry out false deals,” though we do not know the details. Says his lawyer ” Mr. Kerviel was trying to make his name as a trader, not rob a bank.” There isn’t evidence so far that Kerviel profited personally from his actions. And now he’s free! Well, kind of. The charges against him did not include fraud, but if found guilty of charges of abuse of confidence he could face 7 in prison. Me- “I would agree tht there is something not quite right about the situation.  One of the things that stands out to me is that he had close to a $70B position out.  Yeah that’s’ not a typo $70B.  I don’t really care what bank you are and how much money you manage if there isn’t enough oversight to notice that someone has a $70B posistion than there are other far more fundamental problems. 

dihard:

Rogue trader lost $7.2B for Société Générale. Here’s how..

His crime – he bet on the strength of the European market (trading futures in the European equity market indexes). Jerome Kerviel didn’t hedge his bets, the European market fell, and lost $7.2B, the largest individual trading hit in banking history (which is largely responsible for the Fed’s emergency cut last week to prevent a stock market meltdown).

Yeah okay, he may have faked his books to make them look balanced to avoid interference from his supervisors. He may have even faked emails or used his colleague’s information to conduct fake trades. But this guy would have been a hero if the markets hadn’t turned against him - no questions asked..

In fact, at the end of ‘07 he was doing swimmingly, with gains for the bank totaling $2.2B. Unfortunately, when the European market fell last week, so did his career.

But there seems to be something fishy going on here:

  • It just so happens that on the same day Kerviel’s loss and pending investigation was announced, SocGen issued a $3B write-down due to exposure to the US subprime market. It went virtually unnoticed.
  • It took the bank 15 days in an organized market to detect the fraud. This type of problem is typically caught within 2-3 days.
  • In order to make fictitious trades, one needs a counterparty and it’s pretty difficult to set up secret trades worth billions without anyone finding out. Per SocGen’s CEO, Kerviel set up a “single, enormous, fictitious’ company to carry out false deals,” though we do not know the details.

Says his lawyer ” Mr. Kerviel was trying to make his name as a trader, not rob a bank.” There isn’t evidence so far that Kerviel profited personally from his actions. And now he’s free! Well, kind of. The charges against him did not include fraud, but if found guilty of charges of abuse of confidence he could face 7 in prison.

Me-

“I would agree tht there is something not quite right about the situation.  One of the things that stands out to me is that he had close to a $70B position out.  Yeah that’s’ not a typo $70B.  I don’t really care what bank you are and how much money you manage if there isn’t enough oversight to notice that someone has a $70B posistion than there are other far more fundamental problems. 

via dihard
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