Rogue Trader or Rogue System? £4 billion Loss!

[conspiracy analyst]

In a casino economy the trader with the biggest hand deals all and as usual ...loses. Is this what the world is coming to?

Its overripe for collapse...

http://news.bbc.co.uk/1/hi/business/7206270.stm

[blackcat]

Just how does a single individual manage to accrue losses of 4 thousand million Pounds before someone notices? A relatively junior employee at that! Who do they think they are kidding???

[conspiracy analyst]

Yeah they are probably trying to pin the whole market crash on one man when what we are dealing with are write offs due to bad debts for most banks.

Every other day a new bank joins the fray announcing losses.
A single trader couls not obviously have had access to all these funds, so instead of blaming the team of traders who did this, they pick on someone whom they have probably paid off and then justify the losses.

Most companies blame for instance train drivers for mistakes when mistakes could be somewhere else.

[TonyGosling]

Dear population of the West. We regret to announce the accidental loss of enough money to run the British primary school system for two years which has helped jitter the markets ready for a crash.



We don't know what happened to it and we'd be infringing the data protection act to give you a name of the fictional employee who did this.

[insidejob]

This is getting silly. One man in a big French bank defrauds the bank of billions but he doesn't steal any money. Yet, he causes the biggest Stock Market fall since 2001. This man is – let’s hear it – a Walter Mitty character. And so, like the JFK assassination, it was carried out by a Walter Mitty acting on his own.

If you ask me, it’s more like the banks chiefs who are the Walter Mittys for letting this happen. This story is ridiculous or what? But what’s the real story?

Might it be that the real reason for the fall was because banks had to make a report about their profit status? Central banks internationally took some action to ensure that other banks get loans to cover up their losses and stop the reports looking too bad? Thus, 5 billion gets loaned out to other banks by Societe General. Or Societe General itself made the losses without the help of the Walter Mitty loaner. They cover up the hole by inventing this ridiculous story.

And what this means, is that the hassles facing the financial world is not confined to sub-prime losses. Sub-prime is probably under 2% of the financial market. That is, the sub-prime story is being put out as a cover story. The losses go much further and deeper. It’s this that they want to cover up.

And it could be that all the billions being given to Northern Rock by the Bank of England, who are using our tax money, are actually being secretly loaned out to other banks and building societies in trouble.

The French guy may indeed end up going to jail but after spending a year or two there, he’ll come out and live a rich life. His reward for participating in the cover up.

This, of course, is just my speculation.

Actually, we’ve been in a recession since the summer of 2006 – when the Bear Stearns bubbled popped.

But what’s alio worrying is that they serve up this ridiculous story and expect people to believe it.

[QuitTheirClogs]

Just a thought, but if one bank lost £4bn on derivative trading, doesn’t that mean that other banks or institutions collectively gained £4bn?

[conspiracy analyst]

Doubts over French bank's version of multi-billion euro scam




Analysts have expressed doubts over Societe Generale's declaration that a single rogue trader was responsible for the fraud that cost it 4.9 billion euros ($7.1 billion).

"If you know the control procedures very well, then it is possible to elude them for a few days, maybe a few weeks. But it's hard to believe that he did this for a year," economist Elie Cohen told France-Info radio Friday.

If the man identified as 31-year-old Jerome Kerviel did manage it alone, it represents "an enormous breakdown" by France's second-largest bank, Cohen said.

The website of the daily Le Figaro reported Friday that, according to material in the hands of the public prosecutor of the Paris suburb of Nanterre, Kerviel allegedly began his scam in February 2007 and worked it until the middle of January 2008.

The bank has filed complaints against Kerviel, who began working for Societe Generale in 2000, for bank forgery and the use of forged documents.

Earlier Friday, the head of France's central bank, the Banque de France, Christian Noyer, said that an investigation into the affair would determine if Kerviel had acted alone and how he had managed to dupe the bank's internal controls without accomplices.

Many analysts in France and abroad were sceptical that a single trader, no matter how clever, could have carried out such a complex scheme for such a, long period of time without an accomplice or the tacit agreement of the bank's management.

Some analysts have suggested that the bank gave Kerviel a free hand in the hope he would be able to make up for losses it suffered because of the US subprime crisis.

On Thursday, Societe Generale also said that it would write down 2.05 billion euros in the fourth quarter of 2007 due to its exposure in the US.

According to Cohen, Kerviel built up positions of some 50 billion euros in trying to cover a series of losses he had suffered.

The Paris-based International Herald Tribune reported Friday that the fraud was not detected until last weekend, when auditors in the bank's risk management office noticed a series of fictitious trades on its books.

Societe Generale then closed out its exposure from Kerviel's trading in a market made volatile by the decision of the US Federal Reserve to cut its benchmark interest rates by three-quarters of a percent.

Kerviel was immediately dismissed, as were four of his superiors in Societe Generale's equities and derivatives division.

On Thursday, Noyer and Societe Generale head Daniel Bouton said they had no idea of Kerviel's whereabouts. But an attorney for Kerviel has told several French media that her client was not on the run and was waiting for formal notification of the charges against him.

The affair has moved several financial institutions to downgrade Societe Generale's shares, the daily Le Monde reported. Germany's Deutsche Bank has changed its recommendation from "buy" to "hold", while the American bank Bear Stearns said that the losses could lead to takeover attempts by competitors.

On Thursday, following revelation of the scam, Societe Generale shares lost more than four percent of their value. On Friday, following a volatile day of trading, the stock lost another 2.56 percent, finishing at 73.87 euros.

Since Jan 1, Societe Generale shares have lost more than one-fourth of their value.
http://www.hindustantimes.com/StoryPage/StoryPage.aspx?id=7642db5e-90d b-4b09-b639-ec51d44053d5&MatchID1=4628&TeamID1=1&TeamID2=6&MatchType1= 1&SeriesID1=1165&PrimaryID=4628&Headline=Doubts%20over%20French%20bank 's%20version%20of%20scam

[rodin]

More here

Seems Money laundering and Israel may fit in somewhere

http://goldismoney.info/forums/showthread.php?t=227040

[conspiracy analyst]

France: Trader accuses Société Générale of using him as a “smokescreen”
By Andre Damon
29 January 2008



Lawyers for Jérôme Kerviel, the 31-year-old securities trader accused of being responsible for €5.3 billion in losses by Société Générale (SocGen), accused the bank Monday of seeking to use his transactions to hide its own losses. Elisabeth Mayer and Christian Charrière-Bournazel, Kerviel’s lawyers, said that SocGen sought to use him to create a “smokescreen that would distract the public’s attention from far more substantial losses that it had made in recent months, notably the unbelievable subprime affair.”

The lawyers accused the Société Générale executive board of creating the bulk of the losses attributed to Kerviel when they dumped his positions into a plunging European equities market, and that this decision “itself provoked losses of €4.5 billion.” They also claimed that Kerviel’s portfolio was profitable by about €1.5bn at the end of last year.

The bank declined to comment on the lawyers’ statement and is apparently standing by its original assessment of the losses, which it attributed to “exceptional fraud.” Kerviel stands accused of “breach of trust” and “unauthorized computer activity.” The prosecution dropped two of the heavier charges it had originally pursued, including attempted fraud and forgery. The bank continues to allege that Kerviel falsified documents in order to cover his tracks, but that charge has had its credibility lessened after the Paris prosecutor dropped the charge of fraud.

Mayer told the press Monday, “In my view, he was thrown to the lions before being able to explain himself.” She continued, “It’s a lynching.” The allegations carry up to seven years in prison if Kerviel is convicted. Kerviel presented himself to police Saturday. He was held at the police station for the next two nights, speaking to financial investigators, and saw a judge on Monday morning.

Meanwhile, Frederik Canoy, a lawyer for a group SocGen minority shareholders, announced that a legal complaint had been filed against the bank requesting that investigators look into possible cases of insider trading. The complaint followed a notice by a French market watchdog that Robert A. Day, a member of the company’s board, sold some €70.89 million worth of bank shares on Jan 9, over a week before the bank began its major investigation of Kerviel’s positions. Two foundations linked to Day also sold some €9.59 million worth of shares the next day.

Investigators also reported that Kerviel’s positions had come under investigation by Eurex, the international derivatives exchange. He was able to avoid further investigation by claiming he had properly covered his positions.

Kerviel was employed as a junior-level trader at the Société Générale, making about €100,000 per year, including his bonus. According to the bank, his portfolio included over €50 billion worth of securities and was valued at a loss of €1.5 billion on Monday. It will, of course, be wondered how a junior-level trader was able to manipulate such huge sums, which amounted to more than the company’s market capitalization. Frank Partnoy, a law professor at UC San Diego, told the press that SocGen (like most other banks) assesses risks “on a net basis.” This means that traders can take out positions of virtually any size, provided that they paired with other positions that appeared to cancel out the risk.

Partnoy notes that these hedging positions are by no means transparent, especially since they are often very complex and based on analysis of past performance that may not hold true in periods of extraordinary readjustment, as is currently the case. What is exceptional in the case of Kerviel is the extent to which the boundary between “exceptional fraud” and normal functioning of financial markets has become blurred.

The bank published a document, entitled “Explanatory note about the exceptional fraud,” attempting to explain how Kerviel was able to generate such massive losses. The bank claims that the futures portfolio managed by Kerviel, which amounted to over €50 billion, was not abnormally large, as it was in the nature of his position to buy and sell such huge blocks of stock for comparatively small returns.

The bank concludes that “the financial instruments in the portfolio, which were genuine and consistent with the volumes traded by a large investment bank, were subject to daily controls and in particular margin calls with the main clearing houses.” In other words, the €50 billion portfolio managed by Kerviel, which placed heavy bets on the rise of European equities indexes, was supposedly in no way extraordinary.

Kerviel’s alleged fraud was, according to the bank statement, confined to the way he hedged his main portfolio. The bank document states that the Kerviel was required to take counterpositions for all of holdings. These hedges would pay out in the event of a stock market decline, and lose value in the event of an upswing. Kerviel allegedly created fictional transactions to skew his hedges so that they would not fully cover a market decline, and would allow for large speculative gains in the event of an upswing.

The stock upsurge Kerviel was betting on never materialized, and on Friday, January 18, as European equities began to tumble, the bank claims it realized that the trader’s hedges would not cover the losses incurred by his main portfolio. An investigation followed during the weekend, and the bank decided Monday to fully unwind all of Kerviel’s positions during the next three days. The selloff corresponded with the worst drop in world equities markets since 2001. The bank then proceeded to announce its losses on Thursday.

The account published by the Société Générale has encountered significant criticisms. The head of equity derivatives at one of the bank’s rivals told the Financial Times: “As the business has developed, the liquidity and the volumes have grown so much, you get used to it and as arbitrage has become more difficult, you do it in bigger sizes. But if it was one person with a €50bn position, that would be strange.” Another banker told the newspaper: “It’s a high-volume, low-margin business. But a position that size is not something you would give to a junior trader. You only need a fat-fingered moment and you’ve tripped the market.”

What could have motivated Kerviel to systematically violate accepted — at least on paper — bank procedures? The Paris Prosecutor, Jean-Claude Marin, acknowledged that Kerviel did not stand to individually make any money from his transactions. But if his positions turned out successful, he would stand to make hundreds of thousands on his holiday bonus. Earlier this year, he expected to take home a bonus of some €300,000 as a direct result of gains on his speculative positions. As Marin, put it, “He wanted to seem like an exceptional trader and anticipator of the market and wanted to get a higher bonus.” Moreover, “Little by little, he started taking positions of pure speculation, and it must be recognized that many of these operations generated profit for his employer.”

While the bank’s executive board may feign righteous outrage over the behavior of this one “rogue” trader, one can hardly say his actions are that much different from those of “respectable” bankers. After all, the current credit crisis is largely the immediate result of funds managers attempting to hide risk by buying up mystery-meat subprime securities. Instead of speculating on Stocks, as Kerviel was doing, they speculated on the US housing bubble. When the bubble began to deflate, the subprime-related bank sectors began to report massive write-offs. As one analyst put it, “5 percent of the banking sector is responsible for 95 percent of the losses.”

Moreover, it is worthwhile noting that the disclosure of losses attributed to Kerviel immediately overshadowed the bank’s loss of €2.05bn in sub-prime based securities. As Partnoy puts it, “A proper ranking of the losses SocGen announced would go: first, trading losses by management; second, CDOs; third, Mr Kerviel. The leading rogue trader in history was a distant third on SocGen’s list of bad news that day.”

He continues, “Many other banks, including Merrill Lynch, Citigroup, Morgan Stanley and others have disclosed even bigger losses from subprime-related derivatives and CDOs. As was the case at SocGen, these banks’ risk management systems did not alert managers, directors, or shareholders to the risk that a handful of people could bring them to their knees. The fact that the SocGen scandal involves one person and a more brazen scheme makes it different in degree only, not in kind.”