"A rogue trader who cost France's Societe Generale bank more than $7 billion by making bad stock market bets was taken into custody on Saturday for questioning, judicial officials said...
Skeptics from Kerviel's neighbors to France's prime minister have questioned whether a single futures trader could have managed such large sums. Adding to the mystery, the bank said Kerviel may not have made any personal gain from his unauthorized trades...
In an interview published Saturday, Societe Generale's chief executive, Daniel Bouton, insisted the bank's actions after discovering the fraud did not fuel turmoil on world markets.
"It's absurd!" Bouton said of the suggestion, in an interview with Le Figaro daily. "Anyone could calculate our contribution to the market in recent days."
Bouton was quoted as saying the bank, in closing the trader's unauthorized positions, respected market rules that forbid any player from intervening with sums worth more than 10 percent of a given market. The bank says that is why it took three days to close the positions.
The bank maintains it was the biggest loser in the case, because of the timing of the discovery.
Kerviel had been investing the bank's money by hedging on European equity market indices. That means he made bets on how the markets would perform at a future date.
Bouton said the trader had been betting throughout 2007 that markets would fall. "He was therefore winning, virtually," he said.
But the bank says he had overstepped his authority and was wagering more money than he should have.
So at the beginning of January, Bouton said, the trader voluntarily created losing positions, to neutralize his earlier gains and cover his tracks.
But markets dropped this month, and fast. "This sad affair veered into a Greek tragedy: His virtual losing position became huge," Bouton was quoted as saying.
The bank's systems discovered an anomaly on Jan. 18, he said. On Sunday, the full scale of the problem was revealed to the bank's management -- "enormous and totally abnormal," Bouton said.
"I decided ... to close the positions and alert the supervisory authorities," he said.
When Asian and European markets collapsed Monday, "that had a catastrophic effect. The losses of Societe Generale became even more enormous," he was quoted as saying.
Ultimately it took three days to close the positions, and the bank lost $7.2 billion...
French presidential aide Raymond Soubie said the trader had been dealing with more than $73.3 billion. That figure outstrips the bank's market capitalization of $52.6 billion, and is close to the annual GDP of entire nations such Slovakia, Qatar or Libya...
The company, which also posted another $2.99 billion subprime-related loss, planned to raise $8.02 billion in new capital."
Rogue French Trader Taken into CustodyI have a few takeaways from this
black swan event:
- It would cost $7.2B to bring the global markets to its knees, in otherwords using the futures market it is relatively inexpensive to destroy global wealth
- If this guy was trading $73.3B in equity on futures then the world is lucky he only lost $7.2B, this could have been a major calamity
- The timing of the event and news is rather convenient for the bulls, suggesting the recent decline was due to a French guy
- He may have affected fed policy which is pretty pathetic
- Banks take on highly leveraged risky bets
- A single person can make a difference
- Rogue trading sounds like fun
*Update:
French trader hacked computers and "combined several fraudulent methods" to cover his tracks
**Update:
French trader charged with "breach of trust" and released until hearing***Update:
SocGen had been warned about rogue trader's activity
" Instability characterized U.S. grain markets Wednesday, featuring bipolar trading in wheat futures, which forced some prospective buyers to pull all cash bids.
