The Guy Who Broke the French Bank
( Los Angeles Times ) - 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 money. He did it, apparently, because he could.
But there remained many unanswered questions Friday, and Kerviel wasn't talking. A sign on the mail box of his Neuilly-sur-Seine apartment, a short walk from his office, said: "Don't search here. He has been seeking refuge elsewhere probably for some time now."
In the charming village in Brittany, where he grew up a few hours from Paris, a neighbor told Reuters that his mother, a retired hairdresser, had rushed off to the capital to join her son, "who wasn't doing well."
Neither was his former employer.
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 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 was not a graduate of France's elite Grande Ecoles, the state-funded schools that produce the nation's managerial and political elite.
Rather, 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 a bright student; capable, but not extraordinary, not a big man on campus. 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.
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."
^Special correspondent Devorah Lauter contributed to this report.On Arabia TV on Friday, Shiite lawmaker Iyad Jamaluddin, from the secular Iraqiya slate, said the government should be careful how it characterizes the splinter group.
"The Iraqi constitution insures the freedom of thoughts and expression, and it's not the government's right to describe (the group) as blasphemous," Jamaluddin said. "Even al-Qaida has not been described as this."
Special correspondent Fakhrildeen reported from Najaf and staff writer Yoshino from Baghdad. Staff writers Saif Hameed and Tina Susman in Baghdad contributed to this report.