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Trader loses £3.6bn... and causes crash
Jonathan Prynn and Peter Allen24 Jan 2008
A rogue trader known as "the invisible man" gambled up to £60 billion in the world's biggest bank fraud disaster.
The 31-year-old dealer - today named as Jérôme Kerviel - lost an astonishing £3.7 billion for French bank Société Générale.
The unprecedented losses were blamed for bringing the world's financial markets to their knees this week by triggering the global collapse in stocks.
Mr Kerviel was described as a " technical whizkid" loner who hacked into Société Générale's immensely sophisticated trading systems.
A SocGen insider said: "That's like hacking into the Pentagon. And he did it in a way that meant he removed all trace of what he was doing. All the trades were invisible. SocGen could not see anything of what he was doing."
Mr Kerviel, who joined the bank in 2000, was a junior trader only earning around £75,000 a year. The bank today said it did not know where he was and admitted he still had his passport.
The scale of his losses dwarfs the £860 million lost by Nick Leeson that sunk Barings Bank in 1995.
Mr Kerviel's activities came to light on Friday night when he made what was described as a "basic slip" that alerted his managers. He had been taking enormous bets with the bank's money on the indices that measure movements in European stock markets - such as the FTSE.
One bank source said: "On Saturday they called him in and interrogated him all day long. He finally broke and he walked them through what he had done. They totted up his losses and by Sunday night they worked out that the losses were about £1.2 billion. They started unwinding them on Monday morning but because the market was falling the £1.2 billion loss became a £3.6 billion loss."
Some senior City figures said the "positions" were so huge that dumping them on one day could have been enough to trigger Monday's stock market meltdown, the worst since 9/11.
One said: "The market was falling anyway. But when you unwind a position as big as this into a falling market it has a hugely exacerbating effect."
The sudden collapse of stock markets in Europe reverberated around the world for two days until the US Federal Reserve stepped in to cut interest rates by 0.75 per cent.
Mr Kerviel has been suspended pending dismissal along with up to five of his immediate superiors. SocGen chairman and chief executive Daniel Bouton has also offered his resignation but it was rejected by the bank's board.
Today he said he believed the rogue trader was acting alone. He added: "I don't know the person and his motives are totally irrational. It doesn't seem that he was able to benefit from these colossal trades and directly he did not, that is for sure, although investigations will have to be carried out."
He said he did not know where Mr Kerviel was, saying: "If he escapes he will be found, no doubt about it."
The bank has denied that it was responsible for this week's panic.
Mr Bouton said: "This is just bad luck, it's Murphy's Law. We discovered it at the same time as the markets plummeted. We were really unlucky, but we had to settle these positions as fast as we could and we did so during the three-day market crisis."
Mr Bouton said his priority had been to investigate and settle their financial position in the markets before making an announcement and calling in the authorities. Further explaining the three-day delay, Mr Bouton said: "My duty was to avoid adding to the terrible consequences of this fraud."
Analysts said that for the size of the losses to be £3.6 billion the trader must have "put up" as much as £60 billion of the bank's money. It is similar to a speculator borrowing heavily to buy a house then being caught out by a collapse in the property market.
Mr Bouton said the bank's financial controllers detected "something fishy" on Friday night. By Saturday they realised it was "an exceptional fraud".
He said the rogue trader had set up a "single, enormous, fictitious" company to carry out false deals.
He said: "The ghost trader had indepth knowledge of the control procedures resulting from his former employment in the middle office. He managed to conceal these positions through a scheme of elaborate fictitious transactions."
Police in Paris have been informed, although the city's prosecutors office has so far issued no comment.
French Economy Minister Christine Lagarde was also due to make a statement on the issue.
Reader views (1)
In our shop we are very sceptical. More likely he lost a big amount but they're adding on a load of their toxic asset backed junk to the final bill
- City Boy In Zurich, Zurich, Switzerland, 25/01/2008 11:48
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