Who do you think is more to blame for the staggering scale of the losses suffered in the Societe Generale rogue trader case?
The bank, the trader — or the system?
Jerome Kerviel, 31, is accused of costing Europe’s fourth-largest bank 3.6 billion pounds in the space of just a few working days by taking a series of disastrous positions in the equities futures market without hedging the risk. Media reports say he used his knowledge of back office procedures and security to rig the bank’s computers to look as though the risk had in fact been laid off.
His motive remains unclear, although he insists he made no personal profit from his activities.
The revelations at Societe Generale come 13 years after Nick Leeson brought down Barings bank with his activities on the futures market, in the wake of which banks were strongly advised to keep their traders and their back offices — where trades are processed and executed — separate.
Was this sheer greed on the part of one individual, lax security on behalf of the bank — or is there perhaps a wider malaise at play, in which banks and traders have crossed some invisible line in recent years to the point where the pursuit of profit has swept away all traditional notions of prudence and duty of care with money?
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3 comments so far
When important data is opaque or difficult to get at, especially when there’s political obfuscation: this is when a bank is at risk. I develop trading and risk systems. Past clients include Barings and Bankgesellschaft. On proposing to visit Singapore 6 months before its demise, I was told “We’d rather not, the politics is a bit delicate”. Our system included real-time position keeping visible at head office. The point these disasters have in common was political resistance to finding things out.
- Posted by Michael GrazebrookI cannot believe that the rogue trader of Socitie General is being touted as a flawed genius. To steal all that money and not accumulate some for oneself smacks of stupidity and not genius.
- Posted by hortense vaughanI can’t believe the lack of investigative reporting on this situation.
SocGen are feeding out the lines and the media are taking the bait. As an employee in corporate banking there are a few questions I’m very keen to hear answers to.
1. Which brokerage houses/banks were counterparties to these trades?
2. How long had SocGen’s position been in red?
3. The Big one - why were there no margin calls on this position?
There HAD to be margin calls
so leading into question 4.
Who was receiving the margin calls at SocGen? Why didn’t alarm bells ring when at least 4 or 5 borkerages rang up looking for a transfer of £100 million each to be deposited in the margin accounts?
No matter how well Jerome could hide the accounts from his own bank, there is no way he can hide the accounts of the counterparties from their respective banks. They all would have known exactly how much Jerome was out on his positions with them.
Nick Leeson was able to make his margin calls by bullying his superiors back in London HQ to transfer him the money. Despite their resistance to give him the money to sustain his positions they relented, as he says in his book, because they didn’t have a clue how futures trading worked. It was quite new for a lot of people back in 95.
Futures trading is now however, the bread and butter of derivatives, hence Jeromes’ trading in “plain vanilla” futures. They don’t call them plain vanilla because they are complex now, do they?
Where is the investigative reporting here? I’m sick of Jerome being stitched up for this when SocGen must have been COMPLETELY incompetent not to have noticed this.
Unbelievable!!
In short the Bank is to blame.
- Posted by Sean M