Did Societe Generale know of illicit trading?

Stephen Beard Feb 21, 2008
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Did Societe Generale know of illicit trading?

Stephen Beard Feb 21, 2008
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KAI RYSSDAL: For once in a long while big losses at a major investment bank can’t be laid at the feet of subprimes. The bank in question is the French group, Societe Generale. Most of the red ink it reported today about $5 billion in the most recent quarter can be blamed on rogue trader Jerome Kerviel. From the European Desk in London, Marketplace’s Stephen Beard has more on the biggest trading loss in the history of banks.


STEPHEN BEARD: Societe General actually made a profit last year. $1.3 billion. But fund-manager Justin Urquart-Stewart says no one finds that result reassuring:

JUSTIN URQUART-STEWART: If you compare it with last year’s, it is a drop of over 80%. That’s a huge drop, just showing actually what size of an explosion that torpedo caused.

The explosion was a total trading loss of $7 billion. The bank claims that Kerviel alone was responsible. Kerviel says his managers knew what he was up to. An internal report just published concedes that Soc Gen’s managers were negligent at the very least. They ignored 75 warning signs that Kerviel was trading illicitly. Sophie Pedder of the Economist Magazine in Paris:

SOPHIE PEDDER: It does look increasingly as if Kerviel’s superiors must have known. And if they didn’t know, they should have done.

There’s a fascinating detail in the internal report. In 2006 the junior trader earned a bonus of $40,000. A year later he got $200,000. Peter Hahn is a former investment banker:

PETER HAHN: If I recommended somebody who worked for me to have that kind of increase, my boss would have a very serious conversation with me saying: “How has he improved his performance so much?” This activity would normally be scrutinized in great detail.

Kerviel, according to the report, had actually asked for an even bigger bonus of $400,000. When the trading scandal broke, he insisted he’d simply been trying to excel as a trader, and was not motivated by personal gain.

In London this is Stephen Beard for Marketplace.

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