Trust us, say French bankers

You could hear the closing of ranks across the Paris establishment this morning as the enarques -- old boys from ENA, the high civil service school -- reassured France that everything is just fine in the French banking world.

They are rallying around Daniel Bouton, the former ENA civil servant who still heads Société Générale a day after announcing that one of his junior employees had fiddled away five billion (7.2 billion dollars) euros without anyone noticing.

Here's Friday night's latest on Jérôme Kerviel, 31, perpetrator of la fraude gigantesque, the man who lost the equivalent to the GNP of Senegal or a year's worth of the French RMI, the basic benefit of the long-term unemployed.

We were too busy yesterday tracking down this lowly trader fou (rogue) that there was no time to blog. The bank refused to divulge Kerviel's name, but it was circulating by mid-day and his Facebook entry led us straight to his friends, most of whom swiftly left his list.

We are told to believe that Kerviel was an amazing whiz with computers who simply managed to outsmart the bank that was supposed to have one of the world's most rigorous systems for managing risk.

Christian Noyer, the enarque who heads la Banque de France, managed this morning to find a silver lining in the cloud that Kerviel [in picture] had cast over one of the pillar's of the French banking world. Because of his stunt, the accounts of SocGen "have been cleaned up" and the "bank is more solid today", Noyer said on RTL radio (listen here). Noyer, who is the same age as Bouton and a good friend, also said that Kerviel had acted entirely alone although it will take months of inquiry to confirm this. 

He also repeated the nonsense that we heard yesterday from François Fillon, the Prime Minister, that the regrettable Kerviel episode is unrelated to the world market problem.  "This has nothing to do with the subprime crisis or with the difficulties of the financial markets in general," said Noyer. 

You don't need a grasp of the derivatives markets to understand the humbug in in this. From café chat to media commentaries, France has reacted with good old Gallic common sense. Something is wrong with a system that lets the humble trader play with about 30 billion euros over a period of a year without his bosses knowing. Everyone sees the link between his bad bets and a market which gambled recklessly on bad credit in the United States.

François Chérèque, head of the CFDT trade unioin and one of the most reasonable of union bosses, summed up the reaction this morning. "What are the people who have their savings and retirement pensions in these banks, to think?"

A useful French expression is doing the rounds. "Responsable mais pas coupable.", or 'responsible but not guilty'. This is the line that a minister coined in the early 1990s to explain why she wasn't resigning over errors by her subordinates. Bouton and his fellow chiefs at SocGen are applying it magnificently although it is supposed that they will go when the storm is over. 

I won't labour the obvious except to note as others have already in comments on the last post, that the disaster at la Générale is another big blow to President Sarkozy and his attempts to convince his gloomy citizens that the sky is not falling on Gaul. Sarko has himself been a critic of l'argent fou (crazy money) and he has been calling for more control of the financial markets, but his main effort has been devoted to persuading France to trust enterprise and accept less state control of the economy. The bank mess has made Jacques Attali's ideas for unleashing the market (last post) look even more dangerous.    

Sarko, we are told, was furious that he only heard about SocGen on Wednesday morning when the Banque de France had been managing the crisis since Sunday. Today he is in India explaining that the French banking sector is one of the safest in the world. And Sarko, it is worth remembering, is one of the few in the governing classes who did not graduate from the Ecole Nationale d'Administration.

[The SocGen advertisement at top asks:"Do you need a bank even closer to you?" We're here to help you.]

Comments

[dot king]

I wonder if he used that horrible gross pink plastic thumb to press the transfer keys and hummed "Winchester Cathedral" to himself as he set out to be so profligate with "virtual" wealth?

[John D Smith]

HELLO...WHO WAS IT WHO SAID?...

"MATURITY IS CAUGHT..NOT BOUGHT!

...'AN ANCIENT MARINER'

--------

[qwerty]

How unlucky for Sarkozy, this plus everything else. If Sarkozy has pizzazz, he does not however have "la baraka", and that's a major failing in a head of state. He's jinxed: see all those obstacles he's proud of having had to overcome in his life. I fear for France.

The "responsable mais pas coupable" was an outrageous disclaimer coined by the health minister when the HIV contaminated blood affair came to light. If I can't remember her name, it's because she disappeared totally from public life after that, even if held not guilty (with Fabius) in the court case. But the expression keeps coming up again and again.

[David Powell]

Some people, nasty cynics that they are, and God preserve us from cynicism, do not believe SocGens story.

They question why Kerviel has not been arrested, like Nick Leeson was; they point out that the huge dip in share values on Monday was, if not caused, certainly amplified by SocGen's selling off of huge quantities of stock.

They say that to them, and they claim to an expertise in the subject, that Kerviel is a fall guy, set up to hide the fact that these vast losses are in fact the result of the buying of worthless bonds in an American Market which the directors of SocGen did not understand.

To be defrauded is bad enough, these nasty cynics say, but to be seen to be massively incompetent, well, 'C'est insupportable'

Aren't cynics horrid?

[Pierre Bernardi]

President Sarkozy called for lower interest rates from the European Central Bank so his economic credentials aren't exactly unimpeachable.

[Pierre Bernardi]

Come now David, Jérôme is so brilliant that he might as well have set up those trading systems by himself. It's a well known fact that in certain backward American communities, private wealth specialists have been backing up their investment claims with a quiet 'Jérôme's got money on it' in their prospective client's ear. He's obviously smart enough to have engineered the carry trade in yen and with his inside knowledge, who knows if he didn't have something to do with a few hanging chads in Florida? I'd like to check that he had absolutely nothing to do with the millenium bug and review his links with the Arabs before we let France out of the woods. The first oil shock we can absolve him of: he was two years from being born. But the second... I mean for someone of his superior intellect, being four was hardly going to stop him, was it?

[Rocket]

Charles,

Spot on your article. It was to be expected that the French banking elite would get together to save a comrade's skin and defend the integrity of the profession. (ROTFL) We are now seeing another example of economic nationalism in France which I will explain later. This "brethren" also applies to every other sector of the French economy which is led by elites as well

As per "Responsable mais pas coupable.", or 'respnsible but not guilty'.(This subject is so passionate that I understand your typos as your fingers must have been flying around the keyboard to get this up.

This was Georgina Dufoix during the tainted blood scandal in France

http://fr.wikipedia.org/wiki/Georgina_Dufoix

Now.."un certain" reality.

Where is this guy Jérôme Kerviel? Why... he is negotiating his silence! If he is going to be the fall guy for SocGen no need to destroy his life. The guy will need to work again. Although I'm sure the Americans would pay him heavily for film rights and a book deal.

Since Sunday he has disappeared with out a trace. Right! Mon c*l!

Eventually he will turn up(maybe dead)but in case he will be found alive a deal will have already been cut.

This guy could not have pulled this off by himself. No way! Fortunately I have the Anglo Business channels to listen to. I believe the co chairman of SOCGEN called him a "weak mind". Well as they said on CNBC, not weak enough to not screw the bank out of billions while they slept.

Ah, the French, the first cover up reaction is to attack the "demented personality".

The first thing that Bouton said yesterday that this was not done for personal gain. So what's the point if he is a rogue trader. He is accused of setting up a fictitious company. What for in that case? As a hobby to see if he can sink a bank for fun.

Don't forget he was operating on the futures market and lost 5bn € but that means his exposure was 10X more or 50bn € or over half of the capitalization value of SocGen! How stupid is the public to believe that a trader can bet the bank on one crapshoot. Not possible, not possible not possible!

Remember, Nick Leeson had was also responsible for back office, middle office and all other verification process steps carried out after a trade so he could control his own verification. This poor guy Kerviel was only a trader.

No way this guy acted alone.

SOCGEN must have lost much more than they have admitted in subprime and they became a target for a takeover. Yes, but a takeover by a foreign bank. French banks not having enough money to come to the rescue as a "white knight" to buy out SOCGEN. And from here we get the most corrupt kind of economic nationalism as of yet. At least Devillepin would come out and say it. It seems as there is now a move towards subterfuge as follows.

Sink the damn bank. We'll find a fall guy and then call for a capital increase and now the bank becomes even more attractive to French banks because of it's low price. Thus you create a monster like BNP-SOCGEN and France conquers the banking world with another giant.

SOCGEN didn't need to increase their capital. They could have absorbed the loss in 2 years with the profits they make, so something is rotten in Paris. This is unheard of a company increasing their capital 5 minutes after they discover a "fraud"

This way. French banks keep one of their own and another French giant is artificially created "de toute piece"

In the past France manipulated the free market and competition through subsidies and Monopolies today it is through stinking financial "montages" "Liberation de la croissance" will be reduced to increasing the number of taxis. It sounds so phony. The good ol' boys are all in it together.

I now understand why the French are nostalgic for Marxism with the kind of gutter capitalism they practice.

It's time to follow the money as they said during Watergate. What did I just hear Fillion say. We (the gov't) may have known about this at the beginning of the week. It is so predictable.

It all works out perfectly. French journalism won't go very far seeking out the truth because they can't so the integrity of the French banking system will be intact.

It's time to start grilling SOCGEN management and members of the Sarkozy government.

But if they don't even have the spine to call Cecilia Sarkozy before the Parliamentary commission how can we expect them to get to the bottom of this.

I fear for Kerviel.

[Robert Marchenoir]

Charles, your coverage of this affair, and the Times', seems vastly superior to anything I have read (yet) on this side of the Channel.

Also, many interesting and informed comments from readers all over the world are to be read on the newspaper site.

This is not a Sarkozy issue. Carl Mortished's analysis is particularly illuminating. Société Générale has broken the china shop and has been caught with its pants down, but it seems all the world's banks are busy doing exactly the same thing.

http://tiny.cc/NdQmY

[azloon]

hey, CB, don't drink the kool-aid that's being served up by 'lefty' cassandras who think the SoGen episode is evidence that capitalism needs to be drastically curtailed.

simply dismiss the SoGen CEO and any others reponsible for failing to adequately supervise, put jerome in jail for 10 years, and move on. no big deal.

and, find out if this is a cover-up for other problems with the bank.

i am happy to see that france has finally got on the capitalist bandwagon, and are producing world-class financial criminals. it means some french are taking sarko and largarde's words seriously, and are 'rolling up their sleeves' and making names for themselves. :)

[Daisy]

Kerviel is a fraudster but he shouldn't be blamed for everything. It's easy to blame one guy and move on but the buck stops with Bouton and the senior people. Imagine a junior employee having no supervision whatsoever!! At what pay level in these banks does supervision begin and end?

[john o'doe]

Be very afraid.
Enarques know nothing about economics and that's why they get to run the European Central Bank (Jean-Claude Trichet ENA), World Trade Organisation (Pascal Lamy ENA) and the IMF (Dominique Strauss-Kahn ENA.
The minister 'coupable mais pas responsable' was Georgina Dufoix ENA.

[GAG]

Trust the French to want to be the biggest and the best. Anything to outdo our man, Nick Leeson (a good Watford boy). Their guy has to go for losses six times greater, how will we ever compete ?

Mme Lagard has now had her wish come true, Paris has, for a few days at least, become the centre of the financial world.

I’m sure that many people would love to be in the same position as Soc. Gen, that’s to say, lose a great majority of their personal wealth and yet be in a stronger position than before. The problem is, that this time the French establishment is not only telling lies to its own people (who have always been suckers for a good tale of intrigue) but to the whole world, a world that’s laughing at their naivety.

Still, isn’t the first phrase that children are taught in French schools ‘C’est pas ma faute’. Sad though when adults still say the same thing.
GAG

[william hipwell]

Surely Jerome was working undercover for BNP. They get to pick up SocGen on the cheap now, Jerome does his time (prob 6 years), and they pay him a one-off bonus of 50m euros upon his release.

[thinknoworpaylater]

Come come now PIRRE B. - Of course there are impossible conspiracy theories but there are also real conspiracies ( Mossad - self confessed ) SocGen knew on Sunday shares were sold on monday and Sarko was told on Wednesday.Thats called insider trading in the U.K. and its illegal but it also smacks of conspiracy. (And French Giants - what next?)

[Pierre Bernardi]

It was the BNP that started the whole episode on August 9th. They claimed that they didn't know what they had let themselves in for! As if the American housing market were anything but transparent!

Join l'exception française: say things as they are.

[alan morgan]

In English the word fraud means criminal deception. I have yet to see any evidence of this in recent journalistic reporting. There is a large smell of incompetence and I think we should be careful to be accurate and not sensational. After all the life of a human being, whatever his faults, is at stake.

[John Gregory Flinn]

"You don't need a grasp of the derivatives markets to understand the humbug in in this."

Quite right.
I can't believe that the head of 'La Banque de France' could be so misleading. I nearly put 'deliberately misleading', but maybe he does'nt understand how the derivatives market works! ref JOHN O'DOE.

However I think there must be another silver lining because the derivatives markets are a zero sum game.
Which means that for every loser there must be a winner. Hence someone or, more probably some others must have won the 5 million euros. And the employees of those enterprises concerned must be feeling pretty good - and very quiet!

Mind you, they may not be in France.
Perhaps AZLOON knows?!

No doubt, there will be a film. I just hope that it be better made than the Nick Leeson one....!

[Blendi Progri]

New details are emerging and more will be uncovered in days and months to come; but as its often the case then our interest would have moved on.

Now, all we know is that the sum is massive, that `it shouldn`t had happened` (always we use this word!) and how its possible that a person in a relatively junior position could do such harm.

Hedge funds (in one form or another–pure gambling) are not easily policed by nature, or it will be a contradictory term, so if a trader wants to cheat he can. Mostly traders call their `daily juggling` as Hedging Risk, but the better used term to me is `gambling on derivatives`...trying to make more money- but there`s no guarantee, they can make more, or lose a lot.
By the very nature they encourage speculation where rewards could be huge, but as with every speculation risks are involved. In practise, there`s very little that can be done about it.

The system, normally works, as and if when one individual person can go astray, then we can hardly blame the system, even the bank strictly speaking.

The same in every field of life; we can protect the president 24/7 but if someone is totally committed to kill him, he most likely than not will achieve his aim,(nevertheless we`ll blame his escort) the railway systems- is another example with so many failsafe mechanisms, early warnings and so on, but if a driver goes barmy he can crash the train and there`s nothing to be done ( still ther will be people asking for the directors to resign).
Generally the system works, as it could have happened more often (this isn’t simple praise, but a fact) and the fact that it doesn’t and is very rare (albeit,a massive story/ with massive loses) speaks well in traders` favour-in general.

One thing to note is that at the time of, Barings Bank collapse the French proudly said : “this kind of thing could never happen in France”.

I sincerely believe that this aint the `system`s` fault. Its just the action of a desperate individual; while motives can stretch from greed to the need to impress, the main point is weakness, where he is at –he cant stop to analyse the repercussion of his action, he will just frantically try to recoup his loses. Maybe it is in someone’s character, maybe not. Who is to say that anyone else, cant be tempted.

Like a gambling addict, the trader fails to see that there`s no end in sight. By trying to `recover` the losses he persuades himself to a point where no amount of deceit or lie is enormous so that they can`t stop, afterwards the loses are colossal. This seems to be the case. But, If someone is hell bent on doing what he did, is good at covering his tracks (and has the know-how) it will be very hard to spot, be it in banking, transport, medicine, IT etc.
------
The sum, though is mind boggling, something that cant be comprehended from the perspective of an average person. What is 4–or-5 billion (or miliard) to me, only just a number, very rarely used.
What is 4 billion pounds? Phew! Just a theoretical Speculation.

And that’s what I think the `poor dude` did. He speculated,& he lost it all!

[Juliette]

Bouton actually offered to resign, but this was refused by the board of directors, since it would just make the trust crisis worse.
He also fired everyone who had been supposed to oversee Kerviel, but theser heads haven't been saved by the board of directors.
Responsable mais pas coupable indeed.

[azloon]

[Mind you, they may not be in France.
Perhaps AZLOON knows?!]

just a guess: the counter-parties to these trades are likely numerous insitutions. i understand he was trading futures contracts on european stocks indices, and options on futures which are derivative. like a true amatuer trader, he continued to 'double down' as the trades went against him, desparately hoping the market would reverse. and surely, he was employing the maximum leverage (called margin here) so that a reversal would more quickly get him back to zero.

a lot smarter guys than jerome have done the same thing, so no shame there.

the shame in on his supervisors (or lack thereof). the poster who suggested this was simply well-intentioned mistakes is off the mark, imo.

certainly, jerome had trading limits that he was well aware of -- euro amounts that he was forbidden to exceed. so at best, he was in clear violation of company policy. probably, tho, his concealing his outsized trades would, in the u.s. at least, constitute a criminal violation of securities laws.

I work at SocGen. I've been there for the last 10 years. I can tell you, even at the higher levels of management no one believes the official story, it's a pathetic cover-up. Bouton has nobody's support, even that of the most loyal, and nor do any of the members of the board. Everyone is completely disgusted.

[Pierre Bernardi]

Thinknoworpaylater, let's see, can we blame the Palestinians for this?
€5bn euros vs $200bn in the US and rising. One year's profits vs millions of people's savings in the UK. J'ai dit.

[Daniel Strohl]

Charles,

Compliments for your article in the paper - very clear. It will of course not please everybody in Paris, but good job nevertheless.

Regarding the blog :
"And Sarko, it is worth remembering, is one of the few in the governing classes who did not graduate from the Ecole Nationale d'Administration"

Yes, but he did not apply either for running one of our big banks - a simple lawyer does not have the required brains and stamina for such a prestigious job !

[Julio]

those SocGen people make the Northern Wreck one's looks good and that's saying something !

They're as fat as neutered cats but not half as smart and/or cunning if they think the general public will buy their version of the story (let alone the market)

[John Styx]

As Rocket points out, a USD 5 billion loss means a position far more important. What is surprising here is not the fraud itself but its scale. USD 100 to 200 million trader frauds happen from time to time (a major French investment bank victim of such a scam very recently), but this is quite unheard of.

All in all, it's very difficult to understand what allegedly happen. Press articles are self-contradictory. One will state that the trader actually lost 5bn, another that the loss came from SocGen's sale of Kerviel's lines at a time when the markets were in turmoil. I'm quite surprised also that Kerviel traded on futures markets, where positions are cash settled every night.

(Not really to the point but, Charles, don't get obsessed with the ENA boys. The Corps des Mines is as powerful as the ENA alumni and much less known.)

[stephen Bull]

What is 5 milliard?
Well about what it will cost the UK every year if it persists in building windmills instead of nuclear power stations. Apparently France is better at engineering than finance.

[Rocket]

John

"As Rocket points out, a USD 5 billion loss means a position far more important."

It was 7.2 bn USD. 4.9 bn €

add to that a loss of 2.2 bn € from subprime makes 7.1bn € or 10.3 bn USD. UGH!

Margin calls only need 10% guarantee, but if you lose out you have to pay back the other 90%

Here's an interesting article about Japanese housewives who play the forex market.

http://tinyurl.com/2tpxo3

What is interesting is that his position was 50 bn € or half the capitalization of the bank. As I said, that is why he hasn't been hauled in for questioning yet. They are trying to cut a deal. People are becoming more and more suspicious by the minute.

[Rocket]

GAG

"Still, isn’t the first phrase that children are taught in French schools ‘C’est pas ma faute’. Sad though when adults still say the same thing."

You hit the nail on the head!

[Dominique]

Blendi Progri,

you say "One thing to note is that at the time of, Barings Bank collapse the French proudly said : “this kind of thing could never happen in France”."

Well, and they were right indeed. The SocGen amount is larger and the SocGen is still alive, and not even negative this year. So, No custumer ruined nor employees fired yet, unlike the Barings that did collapse and disapeared.

So, we can still say "Barings scandal could not happen in France". For good.

[christopher muir]

Nothing about banking systems surprises me any longer. A leading American bank some years ago shot $3000 of my savings into distant cyberspace without authority. Anxious, I immediately enquired. “It’s only data,” the voice explained. So, money nowadays is only data on a screen, eh? (Keystroke error was the eventual explanation.)

I rather like the author William Gibson’s description of the computer world that governs our lives: “A graphic representation of data abstracted from the banks of every computer in the human system. Unthinkable complexity. Lines of light ranged in the nonspace of the mind, clusters and constellations of data. Like city lights, receding.”

It's no time to be asleep at the wheel.

[azloon]

Churchill has been appearing inordinately often on recent blog strings.

so, in tribute to the greatest brit in the history of the empire (with an american mother), a churhillian quote which touches on SocGen's lack of candor:

"in times of deceit, truth-telling becomes a revolutionary act."

this is the sort of revolution worth honoring.

incidentally, Alan Morgan, kerviel's trading allegedly invoved booking 'fictional' trades. that would be a crime, not to mention his violating his firm's trading limits.

are your related to nick leeson?

[Rocket]

Dominique

Please don't forget that Barings was much smaller than SocGen.

Also please don't forget that SocGen got a capital increase from other French banks in the 10 minutes that followed the announcement. (esprit de corps)

We still don't know how much their losses are but they may have been on the brink and teetering

But you are right. This could never have happened in France because the government would have bailed them out in a New York minute.

[paul angers]

As a now unhappy customer of SG (I have a few shares) I have had several problems with SG over many years. Sloppy contracts, overambitious and greedy employees, exploitation of old people, orders not carried out plus a problem over inheritance (acknowledged by SG). There's an unhappy mixture of civil servant arrogance and profit/salaryboosting greed. Do not bank at the S G. Unfortunately much the same amateurism and arrogance can be found at the Banque Populaire and I presume others too.
Unhappily for those living in France it amounts to one more example of so much amateurism in French small business nowadays (especially small). Arrogance towards the customer, poor work, lack of professionalism. Even my sollicitor has let me down. There are all too few exceptions.
In short SG had it coming.

[dot king]

I am listening to the midday news here - the first item was about some bloke who has tricked the ASSEDIC out of €300.000 and has been locked up illico.

So where's Kerviel?

[dot king]

"Still, isn’t the first phrase that children are taught in French schools ‘C’est pas ma faute’. Sad though when adults still say the same thing."

In any school worth its salt they would immediately be corrected and made to repeat "ce n'est pas DE ma faute" :) by the time they'd copied it out 500 times along with 50 times the school rules, they'd have it right - for all time!
Une colle! :)

[dot king]

From what I'd understood of the Barings affair, one of the problems was that the owners of the bank had inherited it (ah, to inherit a bank - I think if I did, I'd take better care of it) and didn't necessarily know anything about banking, money markets, trading on a world scale. They just headed it and let others do the work, nodding approval when needed.
Barings, again as I undertand it was a small bank with a select (rich) clientèle. Soc Gén is a "high street" bank with lots of ordinary clients who just bank there, for me this makes it different, but we're told that the bank, despite these HUGE losses will still be in profit.
Now, I am acquainted with the French saying "il ne faut pas tout mélanger" but, sorry, I can't help it, there are huge amounts of money around if this much can disappear, no one has yet been arrested, and we're only talking "reduced profits" and France is in such a mess financially - and this falls on the ordinary person.
Dominique, I'm surprised at you being content to agree that "this couldn't happen in France" - there's much more involved than national pride in being "protected" from a Barings-type "accident".

[Pierre Bernardi]

Jérôme was on a promotional tour of Japan last March. The local press immediately noted his attractiveness to Japanese women of a certain age. The Soc Gen's "Got a yen to buy some French euros?" campaign consequently gained a massive following. Coincidence TNorPL? I think not.

[richard jones]

SocGen is the bad gambler. Luckily they found 'demented Kerviel' to blame.

[richard jones]

M. Angers,

Vous avez bien raison....des notaires aussi.

[azloon]

re whether kerviel acted criminally or not

"SocGen has lodged a complaint with police based on three main charges -- fraudulent falsification of bank records, fraudulent use of such records and computer fraud. The three charges carry maximum prison terms of between 2 and 5 years.} Forbes Magazine online

[Consultant Man]

Unfortunately I am not surprised. During my recent work as a consultant for a subsidiary of multi-billion French financial institution I discovered that subsidiary managers were siphoning off company funds to offshore accounts controlled by themselves. After the holdings CEO became aware of it, most his actions were about keeping the company calm rather than solving the problem. Those who uncovered the diversion funds and reported it to the top received a severe dressing-down from him because they had violated company "etiquette" by skipping some corporate layers to get the info to the top. It took months until French audit teams were dispatched to look into this. Until then the responsible managers remained and sacked accountants and controllers who were below them because they knew too much. Quite apparently the CEO rather accepted the diversion of funds than having some dent in his corporate "culture". Very unfortunately this particular CEO runs that company until today.

In that institution problems were not picked up since controlling, finance and audit departments were largely detached and no one bothered to put together the big picture or to read balance sheets. Business units could for months and years report fictitious figures in controlling while at the same time drawing down inter-company credit lines to cover losses - no one ever bothered to reconcile that. All people were concerned about was keeping things neat in their little department world - reality didnt bother them much.

Quite luckily its not their money and that particular financial conglomorate is so incredibly deeply layered that the ultimate shareholders cannot control the CEO.

Even if SocGen trader managed to hack into the backoffice systems, the finance people should have picked up that hundreds of millions are drawn down for margins on his trades. Apparently no such check happened. Given my experience with above mentioned French institution I am not that suprised. Quite apparently the managers in Paris are only concerned about keeping their job and lunching in their three-star canteens. The attitude is simply disgusting.

[Rocket]

SoGen conference call from FT

http://tinyurl.com/2hnbzc

be sure to click on interesting links

[John Styx]

@Julio: Northern Rock's fall was partly prompted by the Bank of England's policy to publish the name of banks asking it for emergency financial support. The European Central Bank keeps such requests confidential. Northern Rock didn't have any subsidiary in Euroland, so thet they had to ask BoE. I'd be willing to bet a hefty sum that other British banks were given liquidity support, but the markets never knew.

@Rocket: you're right of course.

Let's look at the silver lining: almost all SocGen financial systems are developed in-house. Limit management system vendors must be overjoyed. Free advertising!

[Rocket]

An Interesting read on Sarkozy's ratings

http://tinyurl.com/3x8h9e

[Robert Marchenoir]

"There's an unhappy mixture of civil servant arrogance and profit/salaryboosting greed."

The entire country is like that, Paul.

[Daniel Strohl]

Let us try some "finance fiction" : if the young trader had, of course totally alone and after having duly cheated the relevant control mechanisms (4 levels, svp !), made a gain of 4.9 b€ instead of a loss, what do you think would have happened ?

1. The young man would have got a bonus, probably strictly limited according to his contract as a junior trader
2. Nobody in the outside world would have been made aware of his name
3. The management in charge, up to the very highest level and in a proportional crescendo mode, would have bragged around with the good results (much better than for ex. those of the "gnomes" of some big American banks battling with the subprime mess) and, of course, would also have cashed in some hefty bonuses.

Note

For younger bloggers not especially familiar with the banking world : Harold Wilson, a British Labour Party politician, had called in a speech the Swiss bankers "the gnomes of Zurich". This happened in November 1956 – Mr. Wilson was Shadow Chancellor at that time. Shortly after that, the Sterling pound was devaluated ...

[Joe]

The term "rogue trader" is a bit of a misnomer here. The whole sorry story was caused by rogue compliance systems, rogue reporting systems, and ultimately rogue management for allowing it all to happen. Their excuse is that the management did not notice.

So, if JK had about Euro 30bn in outstanding and uncovered positions my question has to be where did the money come from to pay the premium on all these positions - how was it not noticed.

I do hope that if JK is taken to court and prosecuted that the management, compliance and reporting staff will also be held culpable for allowing it to happen.

Given the total failure at all levels in Soc Gen surely the phrase Rogue Bank would be more appropriate.

As it stands I do not believe Daniel Boulton for one minute.

Joe

[ABB]

I see the Colonel Blimps are out in force to try and get on over on Johnny Frenchman.

Let us not forget that every man and his dog seemingly knew about the impending collapse
of Northern Rock (but said and did nothnig), with the exception of its unwitting depositors.

And as for Free Markets - what free markets?
Across the pond, we see one thinly veiled attempt after another to socialise the debts run up by the investment banks, devised by the Fed and Treasury to help out their old biddies and former colleagues on Wall St.
Those who live in glasshouses etc...
ABB

[Blendi Progri]

Dominique
You are right when you say Soc-Gen is still alive, (and kicking- I`ll add) , maybe I should have elaborated the precise point, but certainly I didn’t mean simple “collapse” as there is no collapse in this case. We`re all aware of this.
It was….meant as the act / or un-checked operation that resulted in Huge Loses incurred.
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at the time the French said: “this kind of thing could never happen in France”
Unfortunately it did. Maybe the institution lives, but theloses, are 4-5 times bigger than in Barings` case.

it wasn’t meant as a simple `bank-collapse` like Barings ( Barings collapse is used as time frame co-ordinate - but also- as the Fraudulent trading route/process that brought it to its knees) they Were Referring to `huge loses of this kind` , not just a `a bank going out of business` could never happen in French trading.
French economists at the time were 100% sure that Fraud on this scale, could never happen in their country. And they proclaimed what they believed, at the time it did sound as a proud boast, almost to the point of immodesty for the ears of people more involved in `this kind of thing`, mainly experienced traders and analysts. As whatever way one chooses the system couldn’t be made 100% safe and if one wants to `tamper` with, he almost certainly will.

Maybe the French thought ( at the time) that their failsafe mechanisms, internal basic procedures, responsibility, banking audits, management control etc; were tighter and better able to spot a Fraud of this quantity& nature taking place.

I`m sure that it wasn`t SocGen that encouraged this young man to `go all in` and I remain positive that the is not the system that produces something like this (for me the system works, and is ok – till a better one is found) but it is the individual, and if someone wants to hide loses, cheat, lie and deceive people for a long time, he may be able to do so, despite the system, and wherever he may be based, Singapore, London or Paris. The trader could be in every rung of the hierarchical scale, the main trader in an office (like Nick in Singapore) of a lowly trader like the K. guy in France, it matters little.
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It could happen anywhere, I even took few obvious examples from different fields, to illustrate the fact that this kind of thing- with a varying degree- is inevitable in every field of life, if someone ( an insider, mostly) will want to do it- he will do it.
Given the time frame of the fraud committed the French bosses can be seen in a `better light` that the Barings` ones ( despite S/G. having bigger loses) as Lesson ran his scam for more than 3 years, now the SocGen one was caught in less than a year.
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Dominique, I would really like to know- as my knowledge in this field is limited- is there any way that someone else could have spotted this. I really do. Aren’t `other guys` colleague traders, told how to spot, or be on look out for signs of massive fraud…
It could be naive to assume this, but are there any `limits beyond which` any type of trading raises suspicions?
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A simply/ simplified example. If I was a farmer and bought –at regular intervals & big amounts- ammonium nitrate, there will be tracks left, sooner or later someone will spot irregularities…or get very suspicious
- people will think why do I need that large amount. The shop, other farmers maybe, the bank seeing money coming and going, the accountant looking at invoices, the wife, neighbours, lol, you get my drift. Someone somewhere will take notice, ad 2 and 2 and conclude that something fishy is going on…. etc etc…

Lets say the guy started to speculate on the fraudulent side of trading, in order to do this he might create a `false account`, a `non-existing` company etc…etc. My question is: could anyone else, despite this trader trying to cover his loses, spot this.

Could another trader in the same commodity or market, i.e Canada, Frankfurt or Tokyo from his side of the computer; spot a very highly unusual activity and stop to think…hmm this is v.v. strange. Then over an amount of time make few educated guesses and then gather more facts, to conclude with some logical deductions that `only another professional can make to judge / understand, another one in his field` and say: wait…this isn’t just unusual, but Fraud.

Is it possible that someone can `smell` something and either contact the interested bank, or report it somewhere? Someone not connected with Soc Gen at all.
I`ll gladly hear anything constructive from people who know this `Trade and its mechanisms` from inside; with the likes of Azloon, Val, and everyone that knows how this can function at deeper levels and have more knowledge- than the average interested reader. It shouldn’t be assumed that we all know how it works, cos we don’t. I certainly don’t. We know and discuss up to a level, beyond which only a professional can explain, hopefully someone with the gift of making things `easy` for most to understand and with few examples. Hope it isn’t much to ask!
Time permiting, and with simple facts one can illustrate for us all, how a commodity/ derivate is traded, and the whole circle, if possible. Of course we can google it, but people mostly, don’t want a rhetorical article/reference about trades and derivatives, and not getting half of it and still despite the research one cant understand it all, this is where experience helps.

What most of us know is from some browsing, newspaper reports, a movie or two about brokers and “gr8 fraud stories” thrillers about financial markets, and little more than that. A constructive explanatory diagram may be needed to explain how it could happen, how it may be hidden and how can a relatively low-level trader, can spend £4 billion over the such a long time frame (1 year!) and no one in this planet ( forget his co-workers) could be able to spot it.
The concern is- I have made it clear that I am sure that this cases are rare – but lets say, for probability’s sake – is 3-4-5 guys like this operate like this at the same time.

It could happen. (Independently people/ great minds have arrived at same conclusions/ at the same time/ without knowing about the others` work/existence)
So why not, these 5 guys, operating at the same time, with the same `ambition` in mind, trying to cover loses, in 4-5 giant institutions, lets say each incurs (lets be brave) 10 billions of loses x 5 = 50 billions, loses in total..

So could 5 lonesome fraudulent traders, bring a financial collapse to the world markets? (is this reasonable to ask, or ridiculous, as it can never happen) Theoritically it seem possible, but…
And what are the steps to prevent this, the best `therapy` that can be used to buffer loses and make the markets recover at practical level

Thanks in advance to Anyone who can spare some time to enlighten me/us about these points!

And… just as an after-though, if 5- 10 individuals, (connected, working together in banking system, with a plan and highly organised) wanted to, could they hold the world hostage? Or that’s just a thriller, lol, and it could never (?!) happen.

[John Styx]

Dot King, "ce n'est pas ma faute" is actually the correct phrase as per Littré, the Académie française and the Dictionnaire général. I'll yield the floor to the immortal letter of Valmont to Madame de Tourvel: "On s'ennuie de tout, mon ange, c'est une loi de la Nature ; ce n'est pas ma faute…"

"Ce n'est pas de ma faute" is attested by many good authors like Hugo and Maupassant, though.