La lex column del FT minimizza oggi
SocGen and tumbling markets
Published: January 25 2008 09:30 | Last updated: January 25 2008 15:59
There are two central questions to the case of Jérôme Kerviel and Société Générale. What was the precise nature of his position? And was it responsible for the sharp decline in European equities between January 21 and 23?
The best assessment is as follows. Mr Kerviel’s supposed job was to arbitrage small discrepancies between equity derivatives and cash equity prices. However, starting on January 7 Mr Kerviel made a series of bets that Germany’s Dax index, the French Cac40, and the Euro Stoxx 50 would rise. He bought futures contracts, as normal, but did not hedge against market falls. (Hedging would usually involve selling the underlying shares, or over-the-counter derivative contracts with clients.)
Eleven days later, on Friday January 18, internal controls finally spotted suspicious activity. By then the Euro Stoxx 50 had fallen by 7 per cent, and the position had generated, SocGen says, a loss of between €1.5bn and €2bn. This implies Mr Kerviel had taken a notional long exposure of €21-€29bn. The margin payments this position generated might have been over €1bn. This may sound too big to avoid detection, but may have appeared normal given the desk’s legitimate activity of very high volume and low risk trades.
On Monday, a shaken SocGen began to liquidate the position over three days. Did it move the market? Over the period the total value of trading in index futures and the cash market for the Euro Stoxx 50, was €514bn. That suggests the unwinding of Mr Kerviel’s rogue position accounted for 5 per cent or less of activity. Clearly a a determined seller does not go unnoticed by traders in a jittery market. But it seems likely that the main explanation for the market rout in Europe was earlier sharp declines in Asia, general concerns over the US economy and specific worries about the monoline insurance crisis. One man severely damaged SocGen, but it seems unlikely that he significantly moved global equity markets.
però in un'altra sezione c'è qualcosa di più pittoresco
The Great Kerviel Conspiracy
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STUFF TO BE SUSPICIOUS ABOUT
Why was it first a “two year cover up” and later, according to the FT, simply a case that Jerome Kerviel built up his losses over a short period?
And what about margin calls?? Answer that!
Why did SocGen people first say a compliance official had first discovered a fake trade after calling a supposed counterparty - and then later the bank said the discovery followed a tip-off?
Wasn’t George Soros in some sort of insider dealing scandal involving SocGen?
Didn’t SocGen bankroll Saddam Hussein through the “Super Gun” affair?
Didn’t something similar to this happen last summer? From Reuters:
The U.S. Federal Reserve cut its discount rate, or the rate at which it lends directly to banks, in August, soon after BNP Paribas, another French bank, spooked investors worldwide by freezing 1.6 billion euros worth of funds due to problems in the U.S. subprime mortgage sector.
Traders speculated that this time round, the travails at SocGen had played a similar catalytic role in the Fed’s move.
POSSIBLE ANSWER TO THE QUESTIONS WE POSE
American Goy blogger on that Reuters theory:
This whole article is all bullshit of course, but it’s nice to see Reuters joining the nutty conspiracy freaks community. A measly couple billion euroes triggered the American and worldwide stock market run and US recession?
Please…
I guess the war in Iraq costing $195 million per day had nothing to do with it all…
Greg Newton and a friend from Goldman may well have cracked it:
It confirms my theory about how this was possible. I was talking about it this evening with a friend who works in equity derivatives at Goldman Sachs and all lines of inquiry ended with the conclusion that there are a lot of morons working at SocGen. (Not exactly breaking news that bit).
Conspiracy Planet, a top source for conspiracy theorists, has the FACTS on the Iraqi link:
(Gerald) Bull’s deal with Iraq had been bankrolled by Societe Generale, the banking arm of the Societe Generale de Belgique, a holding company of the Belgian royal family which owns 40% of the country’s industry.
Shadowparty has a relevant timeline on the Soros connection.
OTHER GOOD STUFF AND RUBBISH
Paul Kedrosky, has some excellent information about how an article in the International Herald Tribune was mysteriously changed between last Friday and then on Sunday. Bank of France Governor Christian Noyer had been quoted saying the French central bank was closely scrutinizing the balance sheets of banks like SocGen - but then SocGen’s name mysteriously disappeared.
Bets on what really happened here? A conspiracy theorist might argue that Noyer actually knew Friday about SocGen’s troubles, and let slip the SocGen info by accident to the IHT. It wouldn’t be the first time that regulators had market-moving information, only to handle it clumsily.
From the Abovetopsecret forum, which isn’t top secret:
Good God. How does one even let this happen??? And a major bankat that. Makes me question the safety of banks right now…what with the general recession atmosphere around the U.S. and all. Anyways, here is the article. Discuss. Speculate as to how you can NOT KNOW that you’ve been had out of 7 Billion Dollars. I mean, come on..this didn’t happen overnight I’m sure. How could someone not have noticed this over time?
c'è del marcio in Parigi 
