January 25, 2008
Il était de $73 milliards d’idiot
One Trader’s Loss at SocGen: $7.2 Billion
“Mr. Kerviel cost the bank $7.2 billion by allegedly making huge unauthorized trades that he hid for months … The losses are forcing Société Générale to seek $8.05 billion in fresh capital from shareholders … He was a low-level trader whose job was to make bets on how large European indexes would trade … His expertise was trading baskets of stocks such as the Euro Stoxx 50 [Expertise, de quoi?].
In the middle of last year he began placing huge unauthorized bets that European markets would continue to rise. At first, Mr. Kerviel fared well and he was winning toward the end of the year [Mais bien entendu]. People close to the bank said the combined positions were worth about $73 billion. [Yowza!]
Though Société Générale says it first learned of problems on his trading desk last Friday [Jan. 18] and uncovered what it termed ‘massive fraudulent directional positions’ last Saturday, it waited six days to go public with news of the losses. That allowed the bank to unwind its positions and avoid even greater losses.
Mr. Kerviel joined Société Générale’s investment banking unit in the summer of 2000 after graduating with an advanced degree in trading [Did he graduate with honors?] from the University of Lyon, in central France.
Last Saturday, Société Générale executives called Mr. Kerviel in for questioning…. The interrogation took a good part of the day because Mr. Kerviel had convinced himself that he had discovered a new way to trade equity securities [I LOVE IT! Une façon nouvelle, pour sûr :)]. For a while, he went in circles while justifying the trading strategy. Finally, on Saturday night, he broke down and admitted to the trades.”
Sad. We’ve all been there but precious few of us, OK absolutely no one ever, had $73 billion on the line.
Societe Generale Reports EU4.9 Billion Trading Loss (Bloomberg)
“‘It’s not possible that our covering operations contributed to the market’s fall,’ said Philippe Collas, the head of asset management at the bank.”
Did he say that with a straight face?
January 25th, 2008 at 10:26 am
Sounds like quelqu’un could have use an ABC stop method.
January 25th, 2008 at 10:35 am
mrtrend: When you’re flat-out long $73 billion, ain’t nothing gonna save you. :)
January 25th, 2008 at 11:36 am
I’m looking forward to “Rouge Trader: Le Sequel”
January 25th, 2008 at 12:29 pm
If they make a movie, please let it be compelling. I liked Ewan McGregor better as Rent Boy and Obi-Wan than as Nick Leeson. Best trader scene I’ve seen is in the movie 25th Hour - you can find it on youtube, with French subtitles, even.
January 25th, 2008 at 3:21 pm
cdn: It won’t be a pretty scene when they find out that they’re long $73 BILLION and everyone in the room literally shits himself. I bet you a dollar to a dime that someone in the bank did in fact throw up when he found out what had happened.
January 25th, 2008 at 4:15 pm
I think you’re looking for http://www.stockpickr.com/ ?
January 25th, 2008 at 4:16 pm
that was in reference to your delicious feed, btw (sorry for the lack of context)
January 25th, 2008 at 4:49 pm
well, he surely has helped to feed a lot of hungry traders out there.. (-:
January 25th, 2008 at 5:00 pm
@r: Thanks, someone named aheilbut already alerted me to that, but I appreciate it (though out of context — email me next time).
@Peter: Yeah, and he panicked the Fed to boot which is a really good trick, lol.
January 26th, 2008 at 1:33 am
Even an inexperienced, novice trader like me can see the up trend line was broken around 4250. What was this guy thinking?
January 26th, 2008 at 6:37 am
johnny g: He was thinking, “sacre bleu! I’m long $73 BILLION and the trendline just broke and I can’t get out, but it’ll come back baby … please please please turn around, baby! Nooooooooooo!” :)
January 26th, 2008 at 7:32 am
Darin: Do you mean Rogue or Rouge or Rouge Rogue? :)
January 26th, 2008 at 12:32 pm
People say SocGen are scapegoating Kerviel, but why would a bank say they were scammed for $7+ billions when they can just say they had a bad trade quarter? Which excuse makes them look dumber and scarier to current or potential clients?
Interestingly, Christian Noyer of BOF and ECB tipped the markets via an IHT interview offhand remark, and probably after he phoned his own broker on Sunday or Monday.
Can you remember the last time IHT had anything original in their pages? Prolly when Hemmingway broke his nose on the bar at the George V.
January 26th, 2008 at 2:05 pm
What truly scares me, Chairman, is the virtual absence of any bank confessions from Tokyo to date. Chinese, Spanish, German, UK, US, and now French admissions and writedowns are out there on the wires and into the history books. But nada from Tokyo which has financed all the world’s bubbles since 1991 at absurdly low interest rates. If some gonzo bank in “1% land” goes tits up, “we have a problem, Houston”.
Barring that I remain “hopefully optimistic”.
January 26th, 2008 at 3:30 pm
Tom #1: I read that Kerviel’s losses were around $2 billion when discovered and when the bank dumped everything in a panic at the beginning of the week, they lost an additional $5 billion. We really don’t know until we see *exactly* what the positions were which we’ll probably never know. I but that they were afraid of leaks and thought the market would gun for them (which it would have of course) so thy dumped everything as fast as possible, crashing the DAX and Euro Stoxx 50. Not sure how smart a move this was, but hindsight is 20-20.
If I were in charge of SocGen’s trading I would have advised exiting the position immediately too, but would have gotten short in Asia first knowing that I was going to crash the European markets hours later — let the conspiracy theories begin!
Tom #2: Japanese banks? You mean writing down their sub-prime debt holdings? I don’t follow the Japanese market at all but I assume the banks there have talked about their exposure to US subprime debt, CDOs, etc. No?
January 26th, 2008 at 8:40 pm
Something smells fishy about that who Kerviel thing. From the way it sounds he was just an average guy that orchestrated this elaborate scheme behind SocGen’s back? A big bad bank like SocGen was *gasp* snookered? My guess is that he’s a scape goat so SocGen can dump all their subprime holdings.
January 26th, 2008 at 10:12 pm
Tom: Nah, I believe he did it, acted alone, and it has nothing to do with SocGen’s subprime holdings, but then again I believed in Santa Claus until I was in my teens. :)
January 27th, 2008 at 3:48 am
Tom, I completely agree with you. That’s total bullshit …
You’ve got to be totally IGNORANT of market mechanics to buy that.
And then the Fed comes with another spin : the markets plunged so we cut the rates, but we made a little mistake because all was coming from a massive sell-off by the Société Générale. So please don’t worry, all is well in the economy and in the derivative club.
January 27th, 2008 at 4:25 am
The class system is evidently such that this chap had little chance of advancement due simply to where he was educated. If he managed to covertly put on $70B in positions using his “superiors” dosh, good on him!
I hope he gets his goodself some serious legal and business representation and cashes in.
Though we only hear about the losers, it’s statistically difficult to assume that all “rogue traders” lose money. What becomes of the winners – “full partner”?
January 27th, 2008 at 5:30 am
The rogue winners take their profits small, so we never hear of them. Then comes the next trade … the losers double down again and again, it’s the company’s money, which is why they’re always bigger amounts than winners when they’re found out.
January 27th, 2008 at 8:35 am
All I know is I’d like to see the exact size of the positions (which stock index futures, # of contracts, buy dates, entry prices, exit dates, exit prices) … should be pretty fascinating. I’ve never heard of $73 billion put on one way in the front month of anything, ever.
January 27th, 2008 at 9:43 am
Chariman, It seems we have two generic Tom’s so I’ll be Tom D :)
My view still is that SocGen would be stupid to admit they got snookered in the back room and upstairs by a rogue trader….unless so many people know it to have been so that Da Bank couldn’t deny it. The class warfare crowd has it wrong, as usual.
W.r.t. Japanese banks….the Middle East Bank Advisor (I may have the name off a bit as I am not at home base) says that Gulf banks are starting to come around to admitting losses on “sub prime ribs”. And who is less forthcoming than the Gulf? T O K Y O. I sure hope I am wrong.
January 27th, 2008 at 10:39 am
Tom D.: SocGen is a listed company so they have an obligation to shareholders to disclose exactly how they happened to lose $7 billion over the last few days — you can’t cover that kind of thing up.
January 27th, 2008 at 10:44 am
Precisely.
January 28th, 2008 at 9:11 am
These things always come out in dribs and drabs.
“they conceded that he was unlikely to have carried out his deception without accomplices.”
“Detectives are working on information that he made a series of phone calls to traders at other investment banks before news of the scandal broke - allowing them to make highly lucrative deals based on his tips.”
January 28th, 2008 at 10:00 am
Cap: Interesting that he may have tipped people because the selling started in Asia … my theory is it was SocGen themselves shorting madly in Asia, knowing that they would crash the European markets hours later, hoping to offset some of the loss. Wild speculation on my part, of course.
January 28th, 2008 at 10:07 am
I don’t think we’ll ever know all the details CM. I like this theory the best:
http://tinyurl.com/2kwoy4
Slave driving tossers.
January 28th, 2008 at 10:21 am
:) nice one.
It’s all into the daily blatt and gossip realm now until perhaps a glimpse of reality is afforded in a believable judicial setting.
January 28th, 2008 at 10:24 am
check out the 3m T-bill.
showing 0.50/0.51 at moment.
something bad is going to happen next few days…
January 28th, 2008 at 10:38 am
@Cap: I love it! (never read The Daily Mash before) I did chuckle every time I read, in serious articles, that “Mr Kerviel’s dismissal is being considered.”
@Tom: I’m willing to wait for the evidence of $73 billion worth of trade confirmations that will be submitted to the court.
@andrew: I will look at the Bills as soon as I finish my croissant. :)
January 29th, 2008 at 12:18 am
So arrogance once again has doomed another institution, I would not blame Mr Kerviel’s for the bank’s failure to properly manage him and to have adequte checks and balances in place. I simple computer system could have created a log for verification of all transactions. I guess it easy to be a Monday morning quarterback