SocGen's Jerome Kerviel Lacked Ill Intent

Much has been made of the SocGen blow-up and the trader who overstepped his authority to cause a $7.2 billion loss by betting all of the bank's capital. This is increasingly looking like the story of a 30 year-old low-level trader who just kept raising the ante in order to gain recognition.

I don't know Jerome Kerviel and I barely know Societe Generale.  But, I do know the French system well having been raised in France.

After reading this article in today's Wall Street Journal, it all makes sense to me.

Kerviel was a low-level trader within an organization that never saw him as anything other than a paper-pusher earning around Euro 50,000 a year.  Rather, the real opportunities in the bank to make money in trading were reserved for those who had graduated from one of France's "hautes ecoles".

Since he wasn't being reared to be successful within the bank, Kerviel sought to gain recognition by first entering a trading group that was only supposed to place routine and small trades in 2005.  He studied the system and kept pushing it to its limits in order to try to figure out how to get small trading wins.   As he wasn't  rewarded with any bonuses, he kept trying to raise the ante as he found the loopholes that would lead him to recognition.

He eventually got into some massive trades going against the market in early January that should have led to huge windfalls for the bank, but he got nervous and tried to hedge these trades in a highly volatile market which probably caused his activities to be discovered.  Then, timing became everything and SocGen dumped his positions in a cascading market from January 21 to the 23, causing these massive loss.

Kerviel was just trying to get a little further in a career where he wasn't being rewarded at all and where he didn't have a future.  He may have lost sight of the fact that he was gambling with other people's money.  But, the reality is that the real fault here lies with SocGen, with their systems and the French workplace.  

I am amazed that the bank's heads have refused to resign.  When these kind of blow-ups happen at Japanese banks and even at US banks, heads roll at the top. I don't think Kerviel should be the only fall-guy here.

I predict that Kerviel may not even end up so bad.  He will probably do a little time at a prison in the Cote D'Azur, come out and write his memoires and then live comfortably - just like Nick Leeson at Barings did.   I, for one, look forward to reading Kerviel's book.

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to financial literacy and bank transparency. Since co-founding this website in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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