Word: socgen
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...First among those expected callers is BNP, France's largest bank by capitalization, which on Thursday confirmed it was considering, "a run at Société Générale" - though just "like all of Europe". The mere rumor of a possible buyout sent SocGen share prices up nearly 11% during trading Tuesday. The feasibility of a BNP offer - or hostile raid - further increased on Wednesday, when it announced 2007 profits of over $11 billion. But BNP is hardly the only player contemplating exploiting Société Générale's troubles to acquire...
Kerviel was no superstar either. He had graduated from what's described as an élite school in Lyons with a degree in "trading" (OK, fellow history majors, once but only once: Hah! Hah! Hah!). But at SocGen, a bank that had made a name for itself trading derivatives - the ever more exotic instruments now available to investors worldwide - he worked in what his colleagues sniffily called "the mine": a trading desk that made uncomplicated up-or-down bets on the direction of Europe's largest stock markets. Kerviel made about $145,000 a year...
...trading desks everywhere) was to separate what banks call "the back office," where trades are processed and recorded, from the trading desks. Leeson had run the back office while also trading, which made it easy - for a while - for him to hide phony trades. Kerviel didn't run SocGen's back office, but had come from what the bank calls its "middle office," which among other things is supposed to monitor traders and their positions for excessive risk. That experience seems to have made it relatively easy to mask trades that went deeply underwater. Again, unsettling shades of Nick...
Among the more laughable aspects of the SocGen debacle is that, in its wake, the bank's top management has been sending out signals that it was the relatively mundane nature of Kerviel's work in "the mine" that led to the lax controls. The implication is that everything is just dandy on SocGen trading desks for vastly more complicated derivatives - including those based on worthless subprime mortgages, which are now crucifying bank balance sheets and roiling equity markets all over the world. Have no fear, folks: management is watching those like a hawk...
...WHAT? SocGen says it was surprised by a series of "elaborate, fictitious transactions" that Kerviel executed. But skeptics are crying foul play, saying rogue trades that large could not have gone unnoticed for so long...