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Rogue trader to cost French Bank $7bn

edesignuk

edesignuk

Moderator emeritus
Original poster
Mar 25, 2002
19,232
2
London, England
French bank Societe Generale has announced losses of 6.9bn euros ($10.2bn, £5.2bn), blamed on a fraud by its trader and the credit crunch.

Societe Generale said it uncovered a fraud by a Paris-based trader, which resulted in a 4.9bn euros ($7bn) loss.
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Ouch.
 
I think I'm pretty sure that this guy put a ton of money on carry trades (like USD/JPY or GBP/JPY) .. to earn the interest differential.. and the fact that carry trades were sky-rocketing. As the market started crashing.. he probably tried to reduce his losses by buying even more at lower levels. Never thought that the markets would crash the way that they have right now..

Sucks for the bank. About time these banks implemented stronger security. I don't know how they fail to notice billions in losses.
 
Music_Producer said:
I think I'm pretty sure that this guy put a ton of money on carry trades (like USD/JPY or GBP/JPY) .. to earn the interest differential.. and the fact that carry trades were sky-rocketing. As the market started crashing.. he probably tried to reduce his losses by buying even more at lower levels. Never thought that the markets would crash the way that they have right now..

Sucks for the bank. About time these banks implemented stronger security. I don't know how they fail to notice billions in losses.
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The guy lost the money on equity derivatives.
 
Impressive - who would have thought that one man could one-up all of Amaranth? :D

What ever happened to Nick Leeson anyway? ;) I sure remember what happened to Barings... :eek:
 
How in the world could the bank not know? I heard on TV this morning that he and his immediate supervisors have been fired. Hope the guy gets prosecuted.
 
ucfgrad93 said:
How in the world could the bank not know? I heard on TV this morning that he and his immediate supervisors have been fired. Hope the guy gets prosecuted.
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Yeah, makes you wonder. I guess that's why he was a "rogue trader". ;) Seriously though, even then, how does someone not notice this? :confused:
 
There's now speculation that his actions helped accelerate the rapid decline in global markets seen earlier in the week as he panicked and tried to recover his losses (gambling up to £60bn!!!).

Way to go, frenchy :D :p
 
~Shard~ said:
Impressive - who would have thought that one man could one-up all of Amaranth? :D

What ever happened to Nick Leeson anyway? ;) I sure remember what happened to Barings... :eek:
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He lives in Galway in Ireland and lectures in risk management :eek:
 
edesignuk said:
Where did you get this info from?
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I'm a currency trader so I have various news platforms open within my trading platform - right now I saw it on Reuters.

"The scale of the alleged fraud grew clearer Friday, when a bank official said 31-year-old trader Jerome Kerviel's positions had reached "several tens of billions of euros" -- a staggering sum for a bank whose market capitalization is 35.9 billion euros ($52.6 billion). The official spoke on condition of anonymity in line with bank policy on such matters"
 
I like the take on it from The Daily Mash :D

FRENCH TRADER WAS FORCED TO WORK 30 HOURS A WEEK

FRIENDS of rogue trader Jerome Kerviel last night blamed his $7 billion losses on unbearable levels of stress brought on by a punishing 30 hour week.

Kerviel was known to start work as early as nine in the morning and still be at his desk at five or even five-thirty, often with just an hour and a half for lunch.

One colleague said: "He was, how you say, une workaholique. I have a family and a mistress so I would leave the office at around 2pm at the latest, if I wasn't on strike.

"But Jerome was tied to that desk. One day I came back to the office at 3pm because I had forgotten my stupid little hat, and there he was, fast asleep on the photocopier.

"At first I assumed he had been having sex with it, but then I remembered he'd been working for almost six hours."

As the losses mounted, Kerviel tried to conceal his bad trades by covering them with an intense red wine sauce, later switching to delicate pastry horns.

At one point he managed to dispose of dozens of transactions by hiding them inside vol-au-vent cases and staging a fake reception.
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John Jacob said:
Oh, I hope not! Societe Generale is one of the big four or five French banks. If they go bust... That would be a lot worse than Northern Rock going bust. :eek:
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Then look for the global equity markets to resume their crashing.. in fact, carry trades just dropped 100 points right now. Wow, I mean.. I know when my wife steals a $20 bill from me (lol) I don't know how these bank managers can let such trades go unnoticed.. it's just .. wow!
 
It's said now (and it seems the most probable hypothesis) that it was indeed the bank who lost this money, and attempted to cover it accusating this trader. The French autorities have started investigating the case.
There's no way an anonymous young trader could gamble such a huge chunk of the Bank capitalization without nobody noticing!

Le Monde
 
Music_Producer said:
I'm a currency trader so I have various news platforms open within my trading platform - right now I saw it on Reuters.

"The scale of the alleged fraud grew clearer Friday, when a bank official said 31-year-old trader Jerome Kerviel's positions had reached "several tens of billions of euros" -- a staggering sum for a bank whose market capitalization is 35.9 billion euros ($52.6 billion). The official spoke on condition of anonymity in line with bank policy on such matters"
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Since when do positions equal losses?

To clarify , the positions that Jerome held were indeed in the tens of billions of euros but the actual cost to close out his futures positions was the amount of the reported losses. What I'm guessing happened is it the cost of those futures contracts he was trading was potentially in the "tens of billions of euros" but the actual difference between the cost of those contracts to SG and the market value of those contracts was the cost to close them out, which was obviously lower. Vanilla futures are generally liquid and done with the clearinghouse as a counterparty so there it's unlikely that SG had to that huge of losses to close the positions although the French markets might handle equity futures differently.

Here's a Forbes article that also contains the quote: http://www.forbes.com/feeds/ap/2008/01/25/ap4574270.html

Note how it states the original figure for the losses while adding info about the position size, clearly implying they are not one and the same in this case.
 
Sauron's Master said:
Since when do positions equal losses?

To clarify , the positions that Jerome held were indeed in the tens of billions of euros but the actual cost to close out his futures positions was the amount of the reported losses. What I'm guessing happened is it the cost of those futures contracts he was trading was potentially in the "tens of billions of euros" but the actual difference between the cost of those contracts to SG and the market value of those contracts was the cost to close them out, which was obviously lower.
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Besides, comparing market cap and positions of a bank does not make a whole lot of sense to me, either. Don't banks have a lot more assets under management than their market caps?
 
http://finance.google.com/finance?fstype=bi&q=OTC:SCGLY

Nearly all corporations have more assets than they are worth in market capitalization, mostly because they have so much in liabilities as well.

SG, according to Google Finance, in 2007 has over a trillion euros in assets and slightly less in liabilities mid-year. While it's still ridiculous that anyone has the ability to make trades in the tens of billions of euros, these figures provide a better picture than someone comparing it to SG's market capitalization.
 
I find it interested that this has been featured in U.S. MSM. Yet, the fact that former Countrywide CEO Anglelo Mozilo walked away with approx 1/2 billion including a $115 million exit package, Stan O'Neal, former Merril Lynch CEO walked away with a 161. million severance package, and Prince of Citigroup 42 million dollars has gotten far less coverage. I don't know if they did anything technically illegal, but considering the crisis they helped to create, those amounts are certainly obscene.

http://www.alternet.org/story/73733/
(Where first 2 figures came from)
 
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