I SUCK AS A TRADER

[excel]

Some people suck and others are Hovers!


Young trader's fraud costs French bank $7.2 billion
By EMMA VANDORE
THE ASSOCIATED PRESS

PARIS -- In what appears to be the largest trading fraud ever carried out by a single person, a young trader at French bank Societe Generale is accused of making unauthorized bets on stock markets that cost the bank nearly $7.2 billion but may not have netted him a cent.

The bank called the fraud "exceptional in its size and nature," and said it apparently went undetected for more than a year by the bank's multilayered security systems.

It would place the young trader, identified as Jerome Kerviel, 31, atop the pantheon of rogue traders, although bank executives said he apparently did not make a personal profit.

Societe Generale Chief Executive Daniel Bouton said Kerviel's motivations were "totally irrational" but gave no further clues to his motive.

The bank, France's second-largest, said Thursday it had learned of the fraud last weekend.

The timing could not have been worse: The bank was forced to sell Kerviel's contracts just as stock markets were plunging worldwide. It took the bank three days to unload them.

Societe Generale said the losses amounted to about $7.18 billion -- one of history's biggest banking frauds. It led to immediate calls for tighter regulation.

The fraud raised comparisons to Nick Leeson, the trader who bankrupted British bank Barings in 1995 after he lost $1.38 billion on Asian futures markets, wiping out the bank's cash reserves.

Leeson told the British Broadcasting Corp. on Thursday that he was not shocked such a fraud had happened again, but "the thing that really shocked me was the size of it."

Bouton insisted Societe Generale is still financially sound. But the bank said it would need to raise about $8 billion in new capital, partly by selling shares in a rights offer underwritten by JPMorgan Chase & Co. and Morgan Stanley.

The company said it expects to post a net profit of $874 million to $1.16 billion for all of 2007 -- even after the fraud and $2.99 billion lost in the subprime mortgage crisis.

Kerviel, employed by the bank since 2000, had worked his way up from a supporting role in an office that monitors trades to a job on the more glamorous futures desk, where he invested the bank's money by hedging on European equity market indexes -- making bets on the future performance of the markets.

Described as a "brilliant" student by one of his former university teachers, he shocked executives with the complexity and scale of his trades. Bouton called the fraud "extraordinarily sophisticated."

Kerviel was involved in what the bank calls "plain vanilla," or the more basic forms of hedging, with limited authority. He took home a salary and bonus of less than $145,700 -- relatively modest in the financial world.

The bank said he went far beyond his authorized role -- taking "massive fraudulent directional positions" in various futures contracts, betting at the start of this year that stock markets would rise.

He apparently escaped detection by using knowledge of the bank's control systems gleaned in his earlier monitoring job.

Most of his positions went unnoticed by colleagues and superiors as Kerviel covered his tracks with what the bank described as a "scheme of elaborate fictitious transactions."

He got caught when markets dropped, exposing him in contracts where he had bet on a rise.

Jean-Pierre Mustier, chief executive of the bank's corporate and investment banking, said he is convinced Kerviel acted alone. Three union officials representing Societe Generale employees said managers at the bank told them Kerviel was having "family problems."

Analysts were stunned that such a huge fraud could have occurred more than a decade after the one at Barings.

It shows banks "are still under the threat that an employee with a good understanding of the risk-management processes can (get around) them to hide his losses," said Axel Pierron, a senior analyst with Celent.

Societe Generale said Kerviel had admitted to the fraud and had been dismissed, along with some of his bosses. Bouton offered to resign, but the board rejected his offer.

The bank also filed a legal complaint Thursday accusing Kerviel of fraudulent falsification of banking records, use of such records and computer fraud.

Elisabeth Meyer, Kerviel's lawyer, said on the French television network BFM that her client "is not fleeing" and is "available for judicial authorities," but did not specify where he was.

The lawyer said Kerviel had been suspended Sunday, and was awaiting formal written notification of the suspension.

The Bank of France, the country's central bank, said it was immediately informed of the fraud and was investigating. Its governor, Christian Noyer, said the trader had an abnormal knowledge of Societe Generale's trading systems, and measures would have to be taken to prevent it from happening again.

Founded in 1864 after a decree signed by Napoleon III, Societe Generale employs 120,000 people in 77 countries.