Trader Jérôme was doing his best for the bank

It's five days since Société Générale announced that its humble trader had nearly broken the bank and the reputation of French finance. Yet Daniel Bouton, the executive chairman, was back on the radio this morning insisting that he was not personally responsible for anything and had no plans to leave the job.

Bouton, 57, [below] even played the line, which I mentioned last time: "responsable mais pas coupable". Jean-Pierre Elkabach of Europe 1 asked him if he felt guilty for letting Jérôme Kerviel [picture above at recent party] expose the bank by 50 billion euros without anyone knowing. "I feel responsible...not personally responsible," said Bouton, who called the final five bilion euro loss a "terrible accident".

It was just like a company that suffers the misfortune of a factory fire, he said. "The director is not blamed for that." The sound from Bouton and his bank colleagues is an aural version of the Gallic shrug. They are saying that it is regrettable but these things happen.

Kerviel has lost his job and is in custody. He is to face charges of fraud and breach of trust, we have just heard from Jean-Claude Marin, the Paris prosecutor. He could be sentenced to up to seven years but Marin said that it seemed that he was not seeking personal gain, merely the credit that he would win with his employers and the ensuing bonuses.  As I write, a couple of hundred police are surrounding the offices of the investigating judges near our bureau. Kerviel is about to be brought in for his first round with the magistrates and they are treating him like some big-time criminal.

It is unlikely that Bouton will keep his job for long. President Sarkozy is spitting blood over the affair and what he sees as the botched handling by Bouton and Christian Noyer, Governor of the Banque de France.  Sarko, the ultimate micro-manager when things go wrong, is aghast that he was not informed until three days into a crisis that would shake the state. 

As the dust settles a little, the question is not what Kerviel got up to but how he got away with it.

The hapless trader, who has now become something of a folk hero, spent the weekend telling the financial police what he had been up to at his computer for the past year. His lawyers say that he did nothing wrong. The bank caused its own losses and is using Kerviel as a scapegoat, they say. .

So, here's a quick guide to what we know so far.

Kerviel, 31, a modest rather introverted, Breton, was supposed to make small profits balancing trades on future European stock market movements. He was allowed to risk a maximum of half a million euros. In late 2006, he found a way of taking out big futures bets while faking the contracts that were supposed to balance all but a small part of the the risk. For 15 months he ran rings round the security system, operating entirely alone and without seeking any personal gain. That is SocGen's version and apparently what he has told the police investigators.   

Kerviel landed in trouble on January 18 when supervisors finally detected one of his suspicious trades. The bank investigated and found that he was out for a potential 50 billion euros. Bouton and Noyer of the Banque de France then spent three days "unwinding" the position in a falling market. This led to the 4.9 billion euro loss.

Bouton remains adamant that Kerviel was an unbalanced character who acted alone and was not part of a conspiracy. The trader's lawyers have yet to give details of their version, but they say that the trader was acting all the time in the bank's interests and that he has been publicly lynched by SocGen. The big loss was the result of the bank panicking and selling off his position at the worst time, say the lawyers. 

The net result has been the discrediting of a great institution and France's role as a leader in financial markets. Teeth are on edge at the Elysée Palace and in French Ministries and embassies around the world as "les Anglo-Saxons" revel in the damage that young Jérôme has inflicted on Gallic pride. Sarkozy and the leftwing opposition are all citing the affair as the consequence of "l'argent fou" -- crazy money. 

On the political front, Kerviel and his bank will have helped revive the Socialists and their devotion to restraining the capitalist beast. Libération set the tone today: "We have found out the name of those who presided over the deregulation of world finance: Frankenstein," wrote Laurent Joffrin, its editor.

The tale of the five billion euro man has removed what gloss remained on Sarko and his bling-bling style. Sticking in the knife, Libé calculated today that Jérôme's loss could buy Sarkozy 35,714,285 of his favourite Ray-Ban Aviator sunglasses. 

One thing that will not be for sale -- at least to foreigners -- is the Société Générale. Sarkozy is certain to do everything to block any attempt at a take-over by a non-French institution.  Henri Guaino, his close adviser and ideas man, made that clear last night.

Comments

[john o'doe]

Bouton has not been arrested and has been allowed to flee the country!
The radio interview broadcast this morning had been recorded earlier as Bouton was in London today, presumably being interviewed for a new job in the City.

[GAG]

John

They don’t want him in the City !
GAG

[qwerty]

What I gather from Le Monde of this weekend, is the absence in France of proper guidelines and controls for traders. According to a "déontologue" in the UK: "Entre Paris et Londres, il y a un fossé culturel. La première n'aime pas les procédures écrites ou s'en moque. Par ailleurs, la formation des traders pour qu'ils se coulent dans l'esprit d'équipe ne semble pas être la priorité des établissements français."

So: France = shoddy laxism + moralistic protests against capitalism, UK = fierce capitalism + a real system of ethics

[Terry]

"Sarko, the ultimate micro-manager when things go wrong, is aghast that he was not informed until three days into a crisis that would shake the state."

Again, I dont see how Sarko didnt really know earlier. Apparently, Ben Bernanke knew the bank was selling off it's positions because of the fraud and this factored into the Fed lowering the US interest rate an additional 1/4 point. Or, so I heard.

John, thanks for the information on the french insuring depositors. How much is each depositor insured for? In the US, it's a $100K per account.

BTW: Didnt this all happen a couple of years ago involving another certain young trader? The world did not end. The financial markets did not collapse.

[dot king]

"Par ailleurs, la formation des traders pour qu'ils se coulent dans l'esprit d'équipe ne semble pas être la priorité des établissements français." (QWERTY)

This directly echoes what I posted on Saturday on another thread after hearing someone on "La rue des entrepreneurs" (France Inter Saturady 9-10am) say: "En France on ne sait pas travailler en équipe".

Both Elie Cohen and another Parisian Professor of Economics(female - sorry hadn't seen her before so haven't retained her name) have said on TV that it's perfectly possible for Kerviel to have acted alone and explained how he could have slipped through all the safety nets.
Both added that that was what they were taught in Economics Schools - not directly to misuse the system, but in learning how others might misuse it, they naturally learn how to misuse it themselves.
Neither professor was fully able to suppress a smile whilst being interviewed, the lady was quite openly rather amused that Kerviel had learned the methodology so well.

[azloon]

a few minutes ago, an american business tv reporter, standing outside the building where french cowboy jerome kerviel is being held, said that he was going to be charged with "attempted fraud."

what do you have to do to be charged with "actual fraud?"

are alleged murderers charged with attempted murder?

CB, do you know if this is so? and if yes, why? a language nuance, or legal technicality, of some sort?

[Dominique]

Azloon,

"he was going to be charged with "attempted fraud. what do you have to do to be charged with "actual fraud?"

Well, you have to stand before the court and be recognized "guilty".

You can't say the fraud is "actual" until proved. That's the very purpose of a procès. Cela s'appelle la présomption d'innocence.

Un accusé n'est pas un coupable. La différence entre les deux s'appelle un procès.

[Dominique]

" la formation des traders pour qu'ils se coulent dans l'esprit d'équipe "

I wonder what that means! L'esprit d'équipe des traders? c'est un oxymore (oxymoron).

[Valentin]

QWERTY:
UK = fierce capitalism + a real system of ethics

System of ethics? We're still speaking of the Perfidious Albion there, right.

[Pierre Bernardi]

There is a more convincing explanation than the one provided by Dominique: there is no evidence of actual fraud, since SocGen and JK formed a community of interest. A charge of attempted fraud is more a stain on JK's character than an actual demonstration of criminal activity. A way of covering the fact that JK was an employee acting within his employers' systems.

[another john]

"Trader Jérôme was doing his best for the bank"
Well, yes indeed.
But ...
aren't you supposed to have fuzzy faces next to the snapshot of the hero trader photo that is used under this caption?
Perhaps these are the very "friends" that have disassociated themselves on the facebook site (so I read)
This must be the "vif du sujet" as one would say ...

[Sam Young]

@ Dominique,

I read your so-called explanation "...Un accusé n'est pas un coupable. La différence entre les deux s'appelle un procès."

Do you you realize that you sound pompous ...?

[Joëlle]

Sarko makes me sick. Bouton has offered his resignation and to work for no salary for the next 6 months to at least attempt sort out this disaster (and after that period he knows damn well he'll be dispensed with) and Sarko is asking him to question his responsibilities. Well, it would seem that Bouton is not one of his "brothers": that lying, thieving Lagardère went right ahead and filled his own pockets brazenly at EADS and Sarko said absolute bugger-all, complete silence. What's that I hear you say? Bouton is a friend of Juppé? Say no more....

[Dominique]

Sam Yong,

No i don't. Being accused is one thing, being guilty is another one. That's facts, sorry. A fraud is actual only if proven.

Everybody talks just like if the guy was already guilty. That is not proven yet. We'll see. You seems very aware of the entire truth...aren't you being "pompous"?

[Daniel Strohl]

QWERTY:
"UK = fierce capitalism + a real system of ethics"

Aha !

And the USA ? If one believes a few papers and a French official financial body, a wealthy American gentleman sitting in the board of SG has sold on the 9.th January (2008) for about 85 millions Euro worth of SG shares, and a few millions more (indirectly through two funds where he has "some influence") a day later. A SG spokeswoman is quoted to have said :"This happened well before (bien avant) the events". ???

Furthermore, one has to remind of some undisputed facts - weighing much more than the SG losses, and with a much bigger impact on the markets - which happened in the USA with the subprime crisis and which have been apparently totally forgotten (or occulted ?) by some posters too happy to point out the lack of professionalism of the SG management (I agree) in particular and of the French in general. The latter should and can be argued from case to case.

I have to say that as far as I am concerned, I am totally ashamed with the SG fiasco. But may be even more with the (official) loss of « only » 2b€ due to the subprimes - one has to be somewhat short-sighted to have invested (or gambled) so heavily in the dubious subprime market, even if among many others several German and Swiss banks have done it also. I have read somewhere that Goldman Sachs has disengaged from this market already in 2006 ... May be this is due to the fact that Goldman is a predestined name for a (good) banker, whereas a few totally unadequate names (in French) of French and European bankers come to mind ...

To be serious again : it seems to me that one has to be quite optimist to dare to speak of ethics - chacun devrait balayer devant sa porte.

"Do you you realize that you sound pompous "

In English maybe, but not in French.

[Rocket]

Daniel

one has to be somewhat short-sighted to have invested (or gambled) so heavily in the dubious subprime market,....

It only became dubious after it crashed.

Do you know what I mean?

[azloon]

Dominique --

the french system is obviously quite different that the u.s. justice system (surprise, surprise !!).

if a person in the u.s. is believed to have murdered someone, or defrauded someone, he/she is charged with murder/fraud, not attempted murder/fraud. this doesn't mean the person is presumed guilty, only that a charge has been brought against him .

'attemped murder' or 'attempted fraud' as charges in the u.s. system would mean an attempt was made to murder or defraud, but not consumated/completed. it is a less serious charge, obviously.

is JK really thought to only have attempted to defraud socgen but didn't actually succeed? hard to believe given the details that have emerged.

i would be glad to have you explain this quirky use of the term 'attempted' when it appears actual fraud is suspected (but not proven until a trial is held).

is this semantics? that is, in france, is actual fraud only established at trial, or with a plea, but until one of those events, it is referred to as 'attempted?'

if so, what do you charge a person with who tries to murder someone but it unsuccessful? is there such a charge as 'attempted murder' under french law?

[christopher muir]

Congratulations to Liberation for at least bringing some humour to the banking scandal. There are simply too many financial "events" taking place world-wide for any investor to feel comfortable at the moment. George W will shortly make his State of the Union speech. It'll probably give Liberation plenty of ammunition for more dark jokes

[qwerty]

Azloon, your last interpretation of "attempted" and "actual" is correct, it goes for France too. "Tentative de meurtre" is obviously sanctioned, the intent was there. and you can prove the intent.

About my comment commented on that the UK has a real system of ethics: I do believe that protestant ethics & generally, professionalism found in the UK, Nordic countries, etc. mean that although the spirit of the market is much more "libéral" than in France, ethic principles are more firmly applied. No, in fact forget about morals, I mean PROFESSIONALISM, just that.

I'm all for a free market with sufficient governance + "judiciarisation". Accountability, in fact. NOT a French word. Which is where we get back to "responsable, pas coupable" which I heard last night on Calvi's show - so Charles Bremner was very intuitive there.

[textibule]

If I understand correctly, JKerviel's trading position was positive or close to it, up to last weekend when things hit the fan.

The losses occurred on the first 3 days of last week, when SG under DBouton panicked and unwound the position into, malheur!, the worst three market days of the last several years. This panic sale concretized the huge losses.

I imagine this selling was motivated by the moral values (corporate responsibility, dread, shame, etcetc) of SGs top management. Because this is France, transparency was never an option. (There aren't many places where it is ever an option, but having said that, France...nah).

What would have happened if the markets were going up those three days instead of tanking. Would we have learned about the 'scandal' of a rogue trader being responsable for 20 billion euros of illicit gains by the SG?

What would Libé be saying about that???

[dot king]

QWERTY - did you manage to stick with the "Mots Croisés" debate to the end? An illustrious cast indeed, but as usual, they all talked at once with the usual result that the debate gets louder without going anywhere. Even Yves Calvi himself was incessantly shushing everyone, then interrupting whoever he gave "la parole" to before they'd so much as uttered a sentence. I gave up and went to bed. This morning I'm none the wiser . . .
(This for those outside of France, is typical of televised - and sometimes radio debates - everyone talks at once, no-one gets heard.)

This morning an "Inter" listener rang in to the "Interactive" part of the "7-10", said he was an agriculteur and had calculated the amount lost in the Soc Gén débacle in tractors! His question was, "ils sont où, tous ces tracteurs?"

[richard jones]

More and more Sarkosy = Kerensky

[john o'doe]

Yesterday Birthday Boy Nico joined the lynchmob yelling for Bouton's head, meanwhile the people's hero, Jérôme is facing a spell behind bars.
So where does this leave our leader on the "dépenalisation du droit des affaires"? See this link http://tempsreel.nouvelobs.com/actualites/politique/20070831.OBS2805/depenalisation_du_droit_des_affaires_sarkozy_cree_la_po.html?idfx=RSS_politique

[Pierre-Henri]

The Académie Française should remove the word "responsabilité" from the dictionaries. Obviously, nobody requires it anymore. Nobody knows what it means, anyway.

"Responsable mais pas coupable" is not only a political tagline. It's a way of life.

...and the cricket:-“My dear friend, I did nothing but sang day and night”...

[qwerty]

Dot, I didn't stay till the end of Mots Croisés and anyway I didn't think anyone on the plateau knew much about "salles de marchés", even those who were supposed to know, so the input was not very interesting. I guess it's savoir-faire that evolves every day, hard to keep up with.

However, I adore Moscovici, he's far too nice a guy to ever get very far in politics, and I like Calvi (in particular his program on France 5 in the early evening). A chronicler in Nouvel Obs said rightly that this program comes up with surprising information and views, not the main stream, official versions, a bit "le roi est nu" (cf. a recent program on Benazir Bhutto). Calvi's replacement on the days he does "Mots Croisés" is a calamity, though - interrupts all the time to make stupid comments.

We're way off track here.

[qwerty]

John O'Doe: I think the droit pénal des affaires in France is extremely finnicky, causes a lot of sweat to get accounts filed on time, shareholder meetings convened withing legal deadlines (thank God for the SAS...), because minority shareholders who want to be nasty can hold management criminally responsible for that. That should be modified. However, abus de biens sociaux, délit d'initié etc. should obviously not be touched. Although I believe the US gets much harder sanctions (Enron, as per the Nouvel Obs site you referenced) with more general, non-specific incriminations. What's better?

[Daniel Strohl]

Rocket,

"Do you know what I mean?

Of course, I know what you mean - it is always very easy to be intelligent afterwards ...

But what I meant is the following : many European banks and before them renowned big American banks as well were lured by the fast money they expected on the subprime market - it is easy to understand that it is always a problem for banks to find markets (see NOTE) where to sell their money with a good margin and with a reasonable risk.

Therefore, everybody rushed on the subprimes - but this boosted even more the housing market and the salesmen, themselves lured by aggressive incentives, used ever more (sometimes rather dirty) tricks to gain more and more customers (there was a very explicit documentary on M6 about that may be 3 months ago), although it should have been obvious that a not negligible part of these customers would not be able to pay back the loans, with the (not in time foreseen) consequence that banks would have many defaulted houses on stock and not many customers to buy them, even at a sharply reduced price.

You know the above better than I do (you and Terry explained very clearly how things work in the USA, i.e that in this case, the banks suffered even more than the defaulted house buyers).

However, I am not sure that some of our bankers did actually bother to send reconnoissance troops to look closely at the market prior to invest there big chunks of money – may be that some of them extrapolated to the US the (French and probably European) banking rule of thumb or even law which says that the monthly reimbursement of loans by a person should never exceed 30% of his available income per month . Even if this rule is respected, and even if the loans are at fixed rates, there are defaults. But they remain generally within (pre-calculated) limits. This was most probably not the case in the US.

The whole mess makes one think of the gold rush in California
and elsewhere. Only the first arrived made money. The last ones had problems.

NOTE :
May be 30 years ago, I read an article in a magazine (probably Der Spiegel) explaining that a Swiss bank in a small Swiss city close to the Italian border had many wealthy Italian customers making big deposits, in order to bring their various savings in a secure shelter, rather then to invest them in Italy.

The boss of the bank was an Alemanic Swiss – therefore of course « digne de confiance » (trustworthy). But what the Italian customers did not know was that the banker invested most of the money back in Italy ... where he – and his bank – finally lost large chunks of money. Of course, the (Swiss) bank stood good for the losses; however, I don't remember what happened to the local boss – he was probably not promoted ...

[Daniel Strohl]

Qwerty,

"No, in fact forget about morals, I mean PROFESSIONALISM, just that".

Yes, one may agree with this formulation - and if even morals are sometimes better respected in Northern countries, it is probably because justice is most of the time faster and the penalties are harder (or at least strictly applied). And everybody over there knows that the incurred risks are more real than virtual or potential ... This may also have a positive influence on PROFESSIONALISM - LOL !

[dot king]

"i.e that in this case, the banks suffered even more than the defaulted house buyers)."

yes, i remember that explanation - i had a vision in which i saw huge piles of dollars without a roof over their head :-(

[Dominique]

Azloon, QWERTY,

"'attemped murder' "!

Ok, i think i got the cultural difference of ours again!

You are very right when you say that both french and american judiciary systems are different. They are indeed. I think (any lawyer could correct me if i am wrong) that the french system is more centered on the "intention" and the american system is more centered on the "result" of the crime if any.

US : 2 different people breaking the same law get the same answer

France : 2 different people breaking the same law will get....a different answer, depending on there intention.

"attemped murder" american version = there is a crime because the guy is dead! (the result is the crime)

"attemped murder" french version : there is a crime only if the guy wanted to kill (the intention is the crime).

You can't be a murderer by accident. If the guy wanted to kill (attemped murder), this is what we call a "circonstance agravante" while if he killed "by accident" (he didn't mean it would a kid say), he needs to face "normal" circonstances.

In our case, we need to find out whether Jerome Kierviel was willing to cheat (circonstances agravantes) or whether he was only bad and not understanding what he was up to. If the guy though he was playing with 500€ instead of 5B€, the "intention" is not the same...

burp...not sure that was clear...

This is of course one of these "responsibility" differences between the two countries.

[John Styx]

Terry, the Fonds de Garantie des Dépôts guarantees EUR 70.000 (ca. USD 103.000) for deposits. There is a specific guarantee for stocks and bonds.

[Maggie G]

"attemped murder" american version = there is a crime because the guy is dead! (the result is the crime)

"attemped murder" french version : there is a crime only if the guy wanted to kill (the intention is the crime).

Dominique, you're making the same mistake you made farther up. You're not focussing on the word "attempted".

"Attempted" murder is when you try to kill the guy but you don't succeed. In attempted murder, the victim is STILL ALIVE.

Otherwise, the difference you are trying to point out, regarding intention, exists for us too. If you kill someone accidentally, it's MANSLAUGHTER, not murder.

[azloon]

Dominique

thx Maggie for answering the point about murder v. manslaughter.

in the case of fraud, however, it's either fraud or it isn't. and if it IS believed to fraud, then fraud is the charge. in other words, if prosecutors, after gathering evidence, decide there is fraud, that will be the charge, and the prosecution will have to prove that in court.

the idea that someone would attempty fraud, but not succeed in that attempt, is not a concept in common law, to my knowledge.

intention does indeed enter the equation, however, as a mitigating circumstance that could influence the judge or jurty, of determine the length of sentence in convicton occurs.

[Seb]

Re Qwerty, Dot King and anyone looking for French debates with some input:
Try "C dans l'air", on France 5. Generaly, they manage not to talk on top of one another.
Now you said it, I agree most French TV debates are including a lot of shouting. A way to improve audience with some catfights?

[Pierre Bernardi]

Robert, The charge bandied about was "Attempt at fraud" and he was cleared of it. Not only did he not succeed in robbing his employers who were in on the act but he never even tried to in the first place.

Misusing company systems is an internal matter. In qualitative terms, JK was doing his job, what he was paid to do, only more so. He worked his 30-hour week. He's a true people's hero!

And the man is free.

[dot king]

SEB - Thanks, I hardly ever miss "C dans l'air", especially in winter, and yes, usually Yves Calvi runs a tight ship debating-wise. I was disappointed in the "Mots Croisés" debate which started so late that considerations of the audimat don't seem to enter the equation. Just before midnight I decided I was to be none the wiser and gave up.
It's worse when it happens on the radio, often on "Le Fou du roi" you can hardly hear what's being said in the general fracas!

[John Gregory Flinn]

"The bank investigated and found that he was out for a potential 50 billion euros."

So that's how it happened.

Selling into a falling market is indeed a foolish market move, epecially where derivatives' trades are concerned. The leverage, or gearing involved may well have multiplied a more modest (original)position into the 50 billion quoted.

However I doubt if JK's lawyers' claims about 'panicking, and timing' will cut much ice. The Bank will argue it might have gone worse.

Although "the discrediting of a great institution and France's role as a leader in financial markets" seems likely to be a theme of the French left, and thus, used to weaken Sarkozy's efforts to 'modernize' France. There is likely to be pressure for external regulation.
Already some financial institutions in the US are looking at legal action against those who have advanced (subprime) loans in irregular circumstances.

There is more to come out as the ripples and losses multiply. Do not be fooled by a market that appears to be recovering.

[Daniel Strohl]

John Gregory,

"I doubt if JK's lawyers' claims ..."

Lawyers have sometimes strange claims or "beliefs". Two or three days ago, I heard a lawyer of Soc. Gén. saying : "pendant une enquête de police et de justice, on est autorisé à mentir. JK ne s'en est pas privé" ("during a police and justice enquiry, one is autorized to lie. JK was not at all reluctant to do that".

My expertise in law matters is close to nil; however, I would be rather surprised if the above is actually written in a law!

[dot king]

The lawyer's job is to defend his client, so i don't know whether we can be sure that a lawyer in such a case will necessarily give a version that doesn't seem to convey, if not innocence, then at least a lack of guilt (!) on the client's behalf.
Remember the scene in "Peur Primale" (Primal Fear?) where Richard Gere, lawyer, facing a client caught more or less red-handed in a murder and pleading "you gotta believe me", replies "it doesn't matter whether I believe you or not, I'm your lawyer".
of course it's an American film, couldn't happen here . . .;}

[Daniel Strohl]

Dot,

of course it's an American film, couldn't happen here . . .;}

- LOL !

And especially not at SG - they are "blancs comme neige", of course !

[azloon]

Pierre Bernardi --

definition of fraud -- "a deception deliberately practiced in order to secure unfair or unlawful gain."

anglo-saxons can only wonder about the mental process of the french judge when he dismissed the "attempted fraud" charge.

JK clearly 'practiced a deception." he hid the size of his trading activity from his employer whom he was trying to impress in order to secure a more elite status in the company. evidence of his fraud is his admission of it, and the fact that he refused vacations so that his deceptions would not be uncovered while he was not there to counter any suspicions.

JK, you say, a true people's hero? what a 'sorry-ass' society you must live in if this guy represents the best france has to offer. but some of us suspected this anyway.

[Pierre Bernardi]

Robert Furlong, apart from the fact that "practised" should be spelt with an "s", I can't fault your definition of fraud. I guess you speak "american".