Société Générale – Please Try To Focus

Latest news out of France has Finance Minister Christine’s Lagarde’s report saying that in addition to controls being lax, (duh!), someone who understand the controls should have never been able to be a trader.

With all due respect to Ms. Lagarde, this is ridiculous. Just look at their annual report. They’ve got “controls” up the wazoo…This is a lame, puppy-dog, excuse.
It’s the management, stupid!

The problem was, and probably still is, one of a lack of segregation of duties and super-lax management oversight in light of reports of discrepancies that were frequently and readily available. The bottom line is management just didn’t care as long as this guy was making money. Then they suddenly realized how he was doing it! Great take on this phenomenon by FT columnist John Gapper:
…Jérôme Kerviel, the “rogue trader” at Société Générale accused of losing his bank €4.9bn . Mr Kerviel did not make money for himself by his trading. Instead, as Jean-Claude Marin, the Paris prosecutor, said this week: “He wanted to show that he was worth as much as the others around him. He truly believed that … everyone would recognise his financial genius.”

Crazy, right? That is what Mr Kerviel’s former bosses, most of whom are either out of a job already or soon will be, think. Rather than sticking to his assigned role as a lowly arbitrage trader, Mr Kerviel tried to become a star. “I think that he is completely mad,” says one banker.
Well, not completely. Actually, there is a good argument that Mr Kerviel acted in a financially rational manner, although he broke both his contract and – allegedly – the law. He had as firm a grasp of superstar economics as Mr Cruise, one of the world’s best-paid film actors.
The basic principle of superstar economics, which applies to both entertainment and investment banking, is that a few people take most of the rewards. If you can establish yourself as a top talent either on screen or on a trading floor, you gain status and get rich…

And a bid by BNP Paribas or Credit Agricole, or both, seems imminent.
Better keep an eye on those PwC investigators. They are playing all sides of the fence on this.

France to Fault Société Générale’s Controls in Report
A French government probe into Société Générale SA’s rogue-trading scandal is expected to report today that control over the bank’s trading operations was too lax, according to a person familiar with the report, putting renewed pressure on Chairman Daniel Bouton to explain how the bank lost €4.9 billion ($7.25 billion)….A bid by BNP, or by Crédit Agricole SA, could whet the takeover appetite of non-French banks, despite the French government’s resistance to a foreign swoop on Société Générale…The report from Ms. Lagarde, a former Baker & McKenzie lawyer and former French trade minister, is also expected to provide some insight into the French government’s view of the future for Société Générale, including whether it should remain independent…

Société Générale has admitted to missing several opportunities to stop Mr. Kerviel’s risky trading. The government investigation into the trading scandal points to these missed opportunities, suggesting that controls were too lax at Société Générale, said a person familiar with the report. The report will also highlight that the bank may have made a mistake in allowing Mr. Kerviel — an employee who had knowledge of control systems because he had worked in the bank’s so-called back office — to work as a trader, this person said. Société Générale has said Mr. Kerviel had extensive knowledge of control procedures and calendars, something that may have allowed him to elude supervision for so long.
3 replies
  1. Independent Accountant
    Independent Accountant says:

    You got it now! Go girl! Of course Kerviel’s trades were unauthorized. He was paid to make SoCGen money. Therefore any losing trade he made was “unauthorized”. Now I understand. There is a critical article about SocGen at Enjoy!

  2. Francine McKenna
    Francine McKenna says:

    Yes, I can see the Economist had the same idea about the extensive Risk Management portion of the annual report. Except it was published after my blog post! And no traditional media has yet taken up the issue of PwC being the investigator given their previous consulting roles with SocGen and their conflict as auditor of both of its most likely suitors.

  3. Anonymous
    Anonymous says:

    What are the independance regulations like in Europe? Are they uniform to the EU, or are they still localized?

    Is PwC toeing the line? Or are they still legally “independant”?

Comments are closed.