The guy who broke the French bank

PARIS — Huddled over lunch Friday at a bistro on the Champs-Elysee, two young bankers wondered about the double life of Jerome Kerviel, the rookie trader with French bank Societe General who perpetrated the largest fraud in banking history.

How could Kerviel hide his lies, the HSBC Bank man asked his friend, who works in Societe General's glass-tower headquarters on the rim of Paris. How could he elude so many levels of controls and cause his bank $7.2 billion in losses?

"He'd have to keep checking just at the right moment," the HSBC banker speculated. "He must have never left his computer screen. Not even to eat."

Around Paris and among financial workers around the globe, many marveled: How could one rogue rack up so many billions in losses without anyone knowing?

And, who is this guy anyway?

Mostly Kerviel is a young man trained in the schools of France's second cities, in Nantes and Lyon, to monitor the billions in trades banks execute every day. He then used his intimate knowledge of how a bank protects itself to engage in unauthorized trades and evade detection.

As far as anyone can tell, he didn't do it to steal. He did it, apparently, because he could.

Kerviel has been under interrogation by Paris police authorities since turning himself in Saturday, according to Paris prosecutor Jean-Michel Aldebert.

Societe Generale, France's second-largest bank, began releasing more details of its own investigation this weekend after growing criticism from top French officials and global financial analysts of its handling of the crisis.

Kerviel had been making unauthorized trades of equities futures on a prediction that markets would drop and started creating losing investments to help cover his tracks, according to the bank.

Kerviel's job entailed hedging the bank's trading positions in European stocks with stock index futures. This involves making countervailing bets on which way stocks will move as an insurance policy to protect the bank's portfolio.

On Friday, bank officials told reporters that Kerviel might have been gambling "tens of billions of euros" in unauthorized trades, far more than initially thought.

A week ago, he apparently made a small error and tripped a security wire. By last Saturday night, he had confessed to his superiors and was apparently helping the bank retrace his trail of fraud, according to a source inside the bank.

French police searched Kerviel's home Friday for more than two hours, according to The Associated Press, and then left with two large black leather cases and one briefcase.

Societe General contends that Kerviel didn't profit personally from his trading and said he was acting alone, mostly likely to prove himself.

But some financial experts had a hard time buying that.

"If you work in banks, you know that when losses are that big the bank cuts off positions," said Mark Touati, an economist at Global Equities. "They can reach a few 100 million. But billions over an entire year?"

On television talk shows such skepticism was also widespread — and perhaps laced with a sense that this elite bank, started under Napoleon III, had gotten its comeuppance.

"You're not going to entrust a person that earned that little — 100,000 euros (about $146,000) a year — with such extremely important portfolios?" said one analyst. "Impossible!"

Kerviel's resume, which circulated on the Internet on Friday, provided little more than a stick-figure portrait of the man: He liked judo and sailing, he spoke English and he had computer programming skills.

But apparently this young Parisian with the knitted brow was capable of much more.

In France's hierarchical society, Kerviel was from the "second tier."

He holds a bachelor's degree in finance from the University of Nantes and a master's degree in organization and control of financial markets from the University of Lyon II.

Valerie Buthion, director of the university's Engineering and Finance Department, said Kerviel was remembered as capable, but not extraordinary. She had been surprised, she said, to read in the local papers that he was called by a banking official a "computer genius."

She was also baffled how he had ended up a trader.

"Our students are trained to be administrative, to control the market, not to play with it," Buthion said.

Washington Post contributed to this story.

After graduation in June 2000, at age 23, Kerviel joined Societe General. After developing and learning the secrets for procedures to control the positions that traders across the bank could use, he became one himself in March 2004, trading in index futures in Eurozone stocks on a desk known as Delta One.

Two years later, he was allegedly making "fake" counter-balancing trades, or bets designed to hedge losses in one stock index with gains in another. He eluded detection with the help of information and, some French observers suspect, connections he had made while working his way up in the back office.

Societe General human resources director told the tabloid Le Parisian he was a "fragile person" and "without any particular genius" who was going through "family difficulties."

That might have included the death of Kerviel's father, a local blacksmith, under possible mysterious circumstances, said friends.

Others anonymously tipped newspapers that he was shy, introverted, even "socially awkward."

Edmund Shing, a trader himself at a big Paris bank, wasn't quite buying all the arm-chair psychoanalysis.

"It's always like this," Shing said. "All the initial question of why? I guess it seems all the more unbelievable when this normal person, really quite boring person, concocts on this scale.

"But maybe he just wanted to keep his job," added Shing. "And, well, these trades looked good."

Share This Story