Blogging from the Highlands of Scotland until I return to the Murcia region of Spain in the Autumn for a month or so
'From fanaticism to barbarism is only one step' - Diderot

Monday, 28 January 2008

Soc. Gen. - Jérôme Kerviel's activities become clearer

There is an excellent report today in the Financial Times. He seems to have been carrying on unhedged trading since 2005, and although his activity was being monitored and he was asked about his activities on several occasions, he was always able to 'show' that his deals were hedged and therefore not risky. He is apparently cooperating fully with investigators upto now. His motive appears to haveen to increase his chances of a good bonus for 2007, for which period he closed out all deals with a profit of around €55mio. Apparently his more reckelssy huge deals began only in early 2008 (it's yet to be shown if this is true) and that as late as midday Friday 18th January his operations remained profitable. Quite extraordinary!

Most worryingly he claims that "the practice of making trades for which he did not have permission was widespread". As I mentioned in my last post on this topic, I expect many other banks are frantically checking all their deals and their dealers' activities to find out if this is true! It is quite clear that Soc.Gen.'s own checking procedures to ensure the autheniticity of what Monsieur Kerviel was telling his bosses was factual were sadly deficient. How many other banks are in this precarious position? Of course 'trust' and 'self-certification' is the basis of much business activity, but there really do need to be back-up methods of verifying that what is certified to be true (whether verbally or in writing) is so and it seems to me that this need is particularly importing when off-balance sheet and hedged operations are at issue.

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