Futures Trader Blamed for French Bank Fraud
STEVE INSKEEP, host:
NPR's business news starts with massive bank fraud in France.
Investors around the world seem more upbeat about the economy after a rough week. Leading stock indices in Asia ended higher, and in Europe they're off to a positive start today. Even in France. Which is surprising since the markets there, not to mention the French people, are still digesting news of a historic case of fraud inside one of their country's biggest banks. Executives say a trader racked up more than $7 billion in trading losses.
And from Paris we have more this morning from Eleanor Beardsley.
ELEANOR BEARDSLEY: In one fell swoop, Societe Generale, one of France's oldest banks and a world leader in financial derivatives, lost $7.2 billion at the hands of a young backroom trader. The investment banker was no bigwig and had a modest salary, but he had worked his way through the bank's trading department since 2000 and knew the system.
Societe Generale's CEO Daniel Bouton said the trader had been able to conceal his own mini-company from the rest of the bank.
Mr. DANIEL BOUTON (Societe Generale): (Through translator) He was intimately knowledgeable about our control processes, so he was able to build his own positions and hide them each time by other positions that were completely fictitious.
BEARDSLEY: The news shocked France and played all day on television. Information is slowly coming out about the trader, a 31-year-old Frenchman named Jerome Kerviel, who worked in Paris. One bank board member had called him no rising star, but his spectacular cover-up earned him the moniker Genius of Fraud from the French Central Bank chairman.
Kerviel had been betting Societe Generale's billions over the last year but was only discovered last week. The company frantically closed out its remaining exposure to his trades early this week as markets whipsawed. The bank's losses were magnified by the market plunge, says economist Catherine Lubojinsky(ph), but this has happened before.
Ms. CATHERINE LUBOJINSKY (Economist): (Speaking French)
BEARDSLEY: Banks regularly lose hundreds of millions of euros because of rogue traders who manage to avoid surveillance, says Lubojinsky. Zero risk just doesn't exist.
Kerviel has been fired and Societe Generale has launched legal proceedings against him. Bizarrely, officials say it doesn't look like he personally profited from the scam. Still, commentators were left asking how it could happen all over again.
The name Nicholas Leeson was on everyone's lips. Leeson was the rogue trader who brought down Barings Bank 13 years ago. His $1.4 billion scam was similar, but it pales in comparison to yesterday's fraud.
Now out of jail, Leeson says the system needs more reforms.
Mr. NICHOLAS LEESON (Former Trader): There should have been, you know, there should have been checks and controls in place to stop him stepping outside of those limits. You're still looking at a system or a situation where the systems and the controls aren't good enough. The people in place to look after those systems and controls simply aren't good enough, either.
BEARDSLEY: The French finance minister proposed stricter controls in the French parliament, while French President Nicolas Sarkozy assured the public that the French financial system was solid.
Meanwhile, Societe Generale said it would rebuild with a capital increase of $5.5 billion euros, and in an act of contrition the bank's CEO says he will forego his bonus and salary for the next six months.
For NPR News, I'm Eleanor Beardsley in Paris.