Soc Gen Affair Rumbles On

[yaakov]

http://ftalphaville.ft.com/blog/2008/01/28...-bonus-surface/

This affair gets murkier and murkier...

The alleged SocGen rogue, Jerome Kerviel, was due to be charged with four counts on Monday, including abuse of trust and attempted fraud. Paris prosecutor Jean-Claude Marin said the trader had “cooperated fully,” although he now faces up to seven years in prison and a fine of €750,000.

But it is the bonus question that has caught FT Alpahville’s eye. Can this really be true? If so, SocGen’s position is starting to look seriously shaky.

Le Monde (hat tip to Alea) reports that Jerome Kerviel, the trader at the centre of SocGen’s €4.9bn in trading losses, has told police that he was guaranteed a bonus of €300,000 for his record year in 2007. He asked for double that.

Lawyers acting for Kerviel have already claimed that his trading was in profit to the tune of €1.5bn at the end of last year.

One disconcerting aspect of the SocGen scandal is the ability of such a junior trader to build such vast positions undetected. Kerviel was only paid €100,000, including his bonus, the bank claimed last Thursday, as the losses were announced. Or peanuts, in banking terms.

Some have suggested that the fact that Kerviel was a relative nobody - an upstart from the mid-office no less - was part of the reason he managed to hide what he was doing. No one thought he was up to the job of trading anyway - fraudulently or otherwise.

Le Monde adds on Monday that Kerviel’s basic salary was only €50,000, while his bonus in 2006 amounted to only €60,000.

So, according to the French newspaper, Kerviel’s bonus was set to increase fivefold - and he was aiming for a lot more than that.

We’ve been wondering why there’s no case on record where a “rogue” trader has been caught on the back of exceptional gains. Is this why?

SocGen is already facing questions as to why its internal systems failed to pinpoint what Kerviel was up to. Why did it only check net exposure, rather than gross? How did he have access to the right systems and passwords needed to carry out and hide his trades? Why had he taken so little holiday in the past year, against usual practises?

Now SocGen is accused of at best missing, or at worst deliberately overlooking, the most glaring red flag of them all. While Kerviel himself claims that the bank itself contributed to the massive losses by closing out his investments prematurely.

Exceptional or outsize gains tend to result from sharply increased risk. A trader whose “normal business activity” involved taking “very little market risk” shouldn’t be making that kind of money. If SocGen was lining up to more than triple his total pay, surely it should have been asking why.

[Guest DissipatedYouthIsValuable]

Standard b0llocks. The whole bank was going under anyway. Showtrial.

[Guest tbatst2000]

Showtrial.

The French are past masters at that indeed. I wonder if they'll guillotine him in the Place de la Concorde when they've finished?

[Guest DissipatedYouthIsValuable]

The French are past masters at that indeed. I wonder if they'll guillotine him in the Place de la Concorde when they've finished?

As long as he doesn't mention cake, I expect he'll be fine.

[A.steve]

The whole bank was going under anyway. Showtrial.

From the outset, while I've no reason to doubt that Kerviel was ever "in the clear" - he certainly looks like someone who the bank allowed to play fast and loose - then lost their nerve.

The most interesting question, of course, is this: Now Kerviel has suggested that other traders at SocGen also "broke the rules", should we now be asking if risk-oriented deception is endemic within investment banking? Should all investment banks be subject to external auditing to eliminate deceptions such as these?

[Bloo Loo]

From the outset, while I've no reason to doubt that Kerviel was ever "in the clear" - he certainly looks like someone who the bank allowed to play fast and loose - then lost their nerve.

The most interesting question, of course, is this: Now Kerviel has suggested that other traders at SocGen also "broke the rules", should we now be asking if risk-oriented deception is endemic within investment banking? Should all investment banks be subject to external auditing to eliminate deceptions such as these?

what? with the FSA?

They couldnt see a WHOLE bank going bust- let alone a department

[Guest DissipatedYouthIsValuable]

From the outset, while I've no reason to doubt that Kerviel was ever "in the clear" - he certainly looks like someone who the bank allowed to play fast and loose - then lost their nerve.

The most interesting question, of course, is this: Now Kerviel has suggested that other traders at SocGen also "broke the rules", should we now be asking if risk-oriented deception is endemic within investment banking? Should all investment banks be subject to external auditing to eliminate deceptions such as these?

Socialise profits, privatise losses. That'd be an interesting reform model.

[A.steve]

what? with the FSA?

No, that's not what I meant... the FSA would benefit from an external audit, IMHO.

[@contradevian]

If any of this is true (and I suspect its really a load of made up b*llocks and an attempt to frame the office "loner") then it might, just might, nieve though I am, lead to wholesale reform of the Banking Industries "bonus culture."

[Little Professor]

Don't be surprised to see Kervel "commit suicide" [a la Dr David Kelly] in the next few weeks. The scapegoat must be silenced.

[Minos]

Socialise profits, privatise losses. That'd be an interesting reform model.

Does not compute.

[Leonard Hatred]

Small salary, huge bonus? He's a walking mortgage (low rate, huge arrangement fee).!

[Guest DissipatedYouthIsValuable]

Does not compute.

I can sell you the model. Terribly complicated.

[bobthe~]

Don't be surprised to see Kervel "commit suicide" [a la Dr David Kelly] in the next few weeks. The scapegoat must be silenced.

"His burnt and dismembered body was found in a vineyard in Bordeaux.

Police say it was the worse case of suicide they have ever seen..."

[Wudolf]

Is this trader cgnao by any chance?

[@contradevian]

Socialise profits, privatise losses. That'd be an interesting reform model.

"Computer says no"

Edited January 28, 2008 by rover2000

[Drexler]

http://www.reuters.com/article/companyNews...992092120080129

but then, we all knew it was ******** anyway.

[A.steve]

One sentence stands out...

He admitted hiding his activities from superiors, but said fellow traders had also shunned bank rules.

i.e. Fraud is endemic in SocGen - and, one has to guess, also at other investment banks.

[thefinalbear]

More here:

http://www.ft.com/cms/s/4f6a042a-ce5c-11dc...0077b07658.html

Looks like one of the Directors sold out JUST before the positions were unwound and the fraud came to light. SocGen shares crashed but not before he had unloaded £70 million or so...........

its getting interesting this.

[@contradevian]

One sentence stands out...

i.e. Fraud is endemic in SocGen - and, one has to guess, also at other investment banks.

I'm not convinced this is "fraud." It's certaintly a strange interpretation on fraud.

Basically the guy was a paid gambler for the bank. Obviously if he was trying to hide his errors then is a bit more dodgy. His passport was out of date, he didn't personally profit, like all traders, he had an eye for a big bonus pay off.

What if his gamble had paid off? Would the bank have said, "oh dear, we have profited from `fraud,` we had better repay the money." I think not.

[thecrashingisles]

SocGen must be in serious trouble. They're now inviting friendly takover offers.

[A.steve]

I'm not convinced this is "fraud." It's certaintly a strange interpretation on fraud.

Basically the guy was a paid gambler for the bank. Obviously if he was trying to hide his errors then is a bit more dodgy. His passport was out of date, he didn't personally profit, like all traders, he had an eye for a big bonus pay off.

What if his gamble had paid off? Would the bank have said, "oh dear, we have profited from `fraud,` we had better repay the money." I think not.

Exactly. SocGen say that this is fraud, and SocGen should be fully aware of the circumstances.

Either it is fraud, and many traders are engaged... or the traders are not acting fraudulently - but SocGen is in making false claims of criminal behaviour as the cause of its losses - which defrauds shareholders.

[lowrentyieldmakessense(honest!)]

Scapegoat

In an interview with AFP, Jerome Kerviel said: "I accept my share of responsibility but I will not be made a scapegoat for Societe Generale."