Jerome Kerviel - Rogue trader Jerome Kerviel lost $7.14 billion in unauthorized trades for France’s second largest bank, Societe Generale, nearly toppling the firm with huge bets that European stock markets would rise.
France’s second-largest bank said today that it had lost €5 billion as a result of the rogue trades by Jerome Kerviel, a 31-year old Paris-based options trader, who concealed his positions through “a scheme of elaborate fictitious transactions”.
The rogue trading fraud carried out by Kerviel -Â described as a low-level trader making less than $100,000 a year - was covered up by his extensive knowledge of back office operations at Societe Generale.
Kerviel joined SocGen after earning a masters degree in finance in 2000 and worked three years in operations before switching to the trading desk in 2005, so he knew how to evade all the internal controls.
After successfully hiding his bad trades for months, the fraud imploded at the worst possible time, forcing SocGen to unwind the positions just as European stock markets were battered to multi-year lows by the mounting credit crisis created by the US subprime mortgage lending mess.
Jerome Kerviel’s fraud is the largest in history, dwarfing the $1 billion lost by rogue trader Nick Leeson, whose massive trading losses led to the collapse of England’s Barings Bank in 1995.
Societe Generale was forced today to seek an emergency $7 billion in new capital to shore up its ravaged balance sheet after the unauthorized trades wiped out an entire year’s worth of operating profits at the 120,000 employee bank.
SocGen said that it was in the process of dismissing Jerome Kerviel and that he had “confessed to the fraud”.
Socite Generale chairman Daniel Bouton said today that “four or five” of Kerviel’s managers and supervisors had resigned and that a legal investigation was taking place.
Bouton apologised to the bank’s shareholders, saying: “This was a lone man who built a concealed enterprise within the company, using the tools of SociĂ©tĂ© GĂ©nĂ©rale, and who had the intelligence to escape all control procedures.”
No word on whether Kerviel will now be known as World’s Biggest Loser…
And that’s the latest news on rogue trader Jerome Kerviel.
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January 25th, 2008 at 10:16 am
Kerviel definitely gets my vote for biggest loser.
What a freakin moron, taking naked option positions with so much downside risk.
Any idiot knows that you have to hedge your bets and limit your risk in absolute terms if the trade goes against you.