Wednesday, June 9, 2010

Kerviel Trial

The defense has successfully demonstrated that SocGen knew what Kerviel was up to and didn't care:

And his team is doing a good job at presenting him as a victim who was egged on tacitly to ever more reckless gambling as long as he made a profit. In December 2007 -- a month before his downfall --  the bank was pleased when it found that he had earned it 1.4 billion euros in concealed trades. Part of the evidence is a transciption of a recording then in which Kerviel's immediate boss tells him: "If you have earned 1.4 billion, you're bloody good. What you have done is a pain, but it's not serious." A month later, he was found to be holding a position of 50 billion euros -- more than the bank's worth.  Some 30 witnesses over the next three weeks may of course change the picture. And Kerviel, who now earns 2,300 euros a month as an IT consultant,  may be ordered to pay the damages demanded by SocGen: five billion euros.  


bernard said...

his boss and I attended the same school, I spent many years in trading rooms, so I think that I have the requisite experience to speak about this. Obviously, this guy went nuts, likely seduced by his lucky run (remember, someone does win the lottery, almost every time, why not you)and the promises of personal riches it contained. I have seen a lot of guys like that. That being said, this guy was a little cog, and would have reported in detail every single day to his boss, who would have reported to his and so on. A positive P/L of that order of magnitude would necessarily have been looked at very carefully, if only because it would have suggested a very good trader or a very good con man. Banks like to know about these things: has this guy got a remarkable strategy, can we replicate it elsewhere profitably, should we allow him even bigger limits. It is obvious to me that the idiot was in the company of similarly dazzled idiots. Proving it from a legal point of view is obviously a very different matter, but my "intime conviction" is there.

Passerby said...

Not matter how you look at this story the SG management & leadership team look bad.

Either they "knew" and are now blaming Kerviel to cover their tracks. It wouldn't be surprising. There are always a lot of people ready to share cash rewards, much less stay when it's time to pay the bill.

Or, they were totally blind to his very risky game. Which I would see as a proof of unforgivable incompetence.

I'd bet my money on the first scenario. Banks have complex control & audit mechanisms. I doubt the lack of one in a sensible department is an accident. And if it were, following the discovery of a breach, people would have been fired massively.
When you only cut the heads that cannot be saved due to public outrage (including the CEO), it's a confession of a systemic issue.