Thursday
Well, why should the English-speaking world have all the fun when it comes to a banking disaster?
Société Générale, France's second-biggest bank, has revealed that one of its traders in Paris had committed a 5bn euro (£3.6bn/$7.1bn) fraud.
3.6bn quid. However one looks at it, that is a lot of money. The Telegraph story I linked to has named the guy who is alleged to have perpetrated the fraud; the meltdown easily surpasses the collapse of Barings, the blue-blooded British bank that went down due to massive losses incurred by derivatives dealer Nick Leeson back in the mid-90s.
What early conclusions can one draw? First of all, it is not possible to argue that the more heavily regulated banking systems in continental Europe are inherently superior to those wild, anarchic Anglos. At the very largest banks operating out of Paris, New York or London, it seems that human venality, incompetence and dishonesty is no respecter of cultural differences. What investors need to realise is that banks contain human beings with all the weaknesses, as well as virtues, humans have. Regulatory zeal has not prevented frauds; and yet every time there is a fresh SNAFU, a chorus goes up demanding some new set of regulations - "something must be done". In the end, the only course is to catch the wrongdoers, lock them up or force them, if possible, to repay the folk they have swindled.
To say that 2008 has started badly in the financial markets is an understatement; with banks like Citi taking huge losses linked to the falls in the US housing sector, this latest, Gallic twist of bad financial news is the last thing that investors needed. Jobs have already been axed in the City; it is likely to get worse before it gets better.
Here is a list of recent monster banking frauds.
Not to worry Jonathon. I'm sure "lessons will be learned" and "steps will be taken" to "ensure nothing like this will ever happen again" both in France and in the rest of Europe, (including, of course, here).
Posted by Kevin B at January 24, 2008 08:05 PM
Apparently all big USA banks had profits in 2007 despite losses, tough i dont know how much would be put in 2008.
Posted by lucklucky at January 24, 2008 09:27 PM
I blame this on a total lack of common sense - transferring a back-office computer nerd to the trading desk was asking for trouble. These positions should be firewalled.
Posted by Sean O'Callaghan at January 25, 2008 12:52 AM
This £3.6bn fraud is bad for Soc. Gen., bad for its shareholders and bad for some of the staff who are going to have smaller bonuses.
But it doesn't need to be very bad for the rest of us.
The alleged fraudster has been identified and can be brought tro trial.
That £3.6bn, lost by Soc. Gen has been gained by some other traders, so the spending power of that £3.6bn is still in the economy.
It doesn't need to be bad for the financial sector as a whole, or the wider economy. Unless 'confidence' is lost, but there's no real need for that to happen. But the presence of 'confidence' is not always rational in the markets.
Posted by Kevyn Bodman at January 25, 2008 02:12 AM
Does this mean New York can have its IPO's back this year after you do your version of Sarbanes-Oxley?
Posted by Kagbok at January 25, 2008 02:16 AM
Does this mean New York can have its IPO's back this year after you do your version of Sarbanes-Oxley?
It pains me to say it but, yes, almost certainly. And not just next year; being European we'll do it bigger and better and there may never be another IPO this side of the Atlantic.
Still, every silver lining has its cloud, and I was wondering what would happen in the financial contracting market place when all those SarbOx types started competing for the real jobs. This will give them something similar to carry on with for a while yet.
Posted by MarkE at January 25, 2008 08:50 AM
What exactly does "£3.6bn fraud" mean? Where did that money go? Presumably Jerome Kerviel can't have it all, or surely he would have stopped after the first bn. I find financial markets as confusing as they are fascinating...
Hm, I've now read the bank's press release. It seems he traded things that were "beyond his limited authority". So what was in it for him?
Posted by Rob Fisher at January 25, 2008 12:47 PM
He was trying to cover up his losses. According to the papers he was a junior trader of limited authority, but his past experience working in the back office meant he knew how to evade the risk management and compliance systems.
Posted by James at January 25, 2008 08:31 PM
