Trader gambled ‘more than the value of the bank’
Investigations have been launched by the French government, the police and Societe Generale — where 31-year-old trader Jerome Kerviel wracked up debts which have baffled the financial world.
His lawyers maintain he is not on run and is available for questioning.
Meanwhile, more sinister accusations began flying in banking circles. These included suggestions from America that the emergency measures taken by France’s second largest bank on Monday had panicked the Federal Reserve into an unnecessary interest rate cut. Yesterday, the bank tried to reassure investors, issued a public apology and said it did not believe Mr Kerviel had made any personal profits from his misadventure.
And a top French presidential adviser revealed the extent of Mr Kerviel gambling was worth more than the bank’s current market value of €35.9bn. “Questions will have to be asked about the internal controls of the banking systems. It is very amazing that just one person could build up a position of more than €50bn [without being caught],” said presidential advisor Raymond Soubie.
In an effort to reassure investors, Bank of France governor Christian Noyer said Societe Generale “is stronger today” after it had “cleaned” up its accounts. Societe Generale has suspended the trader and filed a criminal complaint but a source at the Paris prosecutors office said it was too early to say what charges, if any, he would face.
The bank’s shares rose by about 1.5% when Paris trading resumed but the case is a fresh blow to investor confidence as global banks reel from multi-billion dollar write-downs over the subprime crisis. Societe Generale announced at the same time as the fraud it had lost about US$2bn (€1.4bn) on its subprime exposure.
But the Bank of France governor said on Thursday he was certain Societe Generale had not sought to disguise losses made in the subprime mortgage crisis.
American analysts suggested the trader may have helped push the US Federal Reserve into an unprecedented rate cut on Tuesday.
Wall Street Journal commentator David Gaffen publicly questioned if the Federal Reserve was tricked by the French bank as it sought to minimise its losses. Mr Gaffen said Societe Generale’s high-volume sales of tainted investments at the start of the week — when markets were in turmoil — helped set the stage for the Federal Reserve emergency 0.75% cut.
Many commentators said it was difficult to believe a lone trader could have successfully hid such colossal losses. These included French Prime Minister Francois Fillon.
“It is difficult... to imagine how one person alone could, in a relatively short period of time, cause such considerable losses,” he said.
