From Both Sides of the Chunnel

The Brits have fined the UK branch of Societe Generale 1.58 million pounds [US$2.44 million] for failure to file acciurate reports on transactions that occurred between November 2007 and February 2010.

Some of the transactions weren't reported on at all, others were treated inaccurately.

The FSA said the failure was branch was "a serious breach of our rules as it can have a damaging impact on our ability to detect and investigate suspected market abuse.”

This fine has nothing to do with Jerome Kerviel, but I thought I'd mention him, because no story abouyt SG is complete without some such mention.

By the way, Kerviel has a book out, L’engrenage: Mémoires d’un Trader (Gears: Memoires of a Trader). There seems as of yet to be no English language edition.

Today is Bloom's Day

In recognition of the day, let us talk about a work of fiction. But not Joyce's immortal re-write of Homer. That would be rather outside our remit. Let us talk, rather, about Jerome Kerviel's imaginary friend.

You remember Kerviel, surely. Back in January 2008, when subprime contagion was already a worry but before all the craziness for which 2008 will be remembered, Kerviel lost 4.9 billion euros belonging to his employer, Société Générale, placing allegedly unauthorized bets on European stock index futures. His superiors there apparently discovered his losses -- overcoming his best efforts to hide them -- on Saturday, January 19. On the following three trading days (Mon. through Wednesday), the bank closed out Kerviel's positions.

Now Kerviel is on trial, breach of trust, computer abuse, and forgery, and his defense is that his trading was not unauthorized after all, that he was no Leeson-style "rogue." Here's a discussion of the issue phrased in the language of the quants.

But now we get to the almost Joycean twist. Kerviel now says he invented an imaginary friend called "Matt," supposedly a rugby loving hedge fund guy. Kerviel would answer questions from a broker, Moussa Bakir, about his trading strategy by saying that the questioned trades were in response to pressure from client "Matt."

Which Matt did he have in mind when he made up that name, one wonders? Damon? Lauer? "Mon ami, Matt, du Spectacle d'Aujourd'hui ...." Anyway, this admission would seem to sink the defense that "my bosses knew it all along."
The Reuters' take is here.

What is left of the defense, I imagine, is the idea that they should have known, and implicitly authorized Kerviel's shenanigans by looking the other way, perhaps pretending to believe transparent lies in the process. Doesn't sound like much of a defense, but it may well continue to delight and instruct, the two great goals of art.

Jerome Kerviel

Société Générale hosted its shareholders' meeting yesterday, five months after the disclosure of $7.7 billion in trading losse, which it blamed on rogue trader Jerome Kerviel.

Shareholders weren't happy. Daniel Bouton, ther company chairman, was lustily booed while he stood impassively at the podium and one shareholder, Jean Richard, shouted, "Who do you take us for" to approval of the crowd. Or so the scene is captured in The New York Times' report.

When SocGen first reported the Kerviel losses, Bouton was both chairman and chief executive. Criticism of his captaincy has been intense -- some of it coming from President Sarkozy -- and Bouton has since given up the CEO post. But he does remain the chair.

Since the start of the year, the value of their shares has declined by 28%. It isn't surprising they're ticked off.

Back in February, it was Felix Salmon, of Portfolio, who put his finger on the key point. Kerviel's profit-and-loss balance for last year was a wild zig-zag on both sides of the zero line. Entering December, though, he found himself sitting on a pot, more than 1 billion euros in the black. He suddenly gets extremely conservative, as if sitting on that pot untilt he year's end. Either he stopped trading entirely or his hedging was perfect.

Then, comes January ... he starts trading again and almost immediately ends up below -4 billion euros.

More is happening than meets the eye if the eye is looking here.