Jérôme Kerviel
What is it?
It's more a question of "Who is he?" Jérôme Kerviel was a relatively low-ranking, 31-year-old options trader at Société Générale in Paris.
In January 2008 Kerviel was taken into custody by French police on suspicion of causing a €5bn loss through 'rogue trades'.
Kerviel's job was to engage in simple trades, with the aim of making money out of differences between the price of equities and equity derivatives. However, as early as 2005 he started making different trades based on the expectation that markets would fall.
By the end of December 2007, Kerviel had made profits of €1.4bn, according to the Financial Times. As this was more than 50% of the revenues of the bank's highly successful equities division, Kerviel was obliged to conceal his success.
However, in early January 2008, an emboldened Kerviel placed a huge €50bn of bets, according to the FT. This time, he made a €1.5bn loss.
The bank became alerted to Kerviel's activities and closed his positions. Unfortunately, it did so in the week beginning 21 January 2008. That week, markets were falling steeply and selling Kerviel's positions resulted in a €4.9bn loss.
The Kerviel affair has raised significant questions as to how a junior trader could have exposed a major European bank to such huge losses.
SocGen argues that Kerviel's previous career in the back office meant he knew how to sidestep the controls imposed on its traders. In particular, Kerviel knew that SocGen only monitored its net trading exposure and therefore entered fictitious loss-making trades to offset the profits he made in 2005 and 2006.
What's it got to do with the financial crisis?
Jérôme Kerviel doesn't have anything to do with the financial crisis directly, but he hit the European banking system hard when it was already down.
Revenues at SocGen's equities division plummeted after the scandal, as did the bank's share price. SocGen was forced to raise €5.5bn in new capital from its shareholders in February. It has also replaced its chief executive and set out to tighten controls with a set of reforms that will cost more than €100m.
Last updated on 26 September 2008.
