Margareta Pagano: Savage for SocGen and a slap in the Fed's face

Eat your heart out, Nick Leeson. Your place in the annals of financial fraud has been trumped by a trader at Société Générale who has cost his bank €5bn (£3.7bn), and who may yet cause France's second-biggest bank to lose its independence. The predators are already prowling, with France's BNP Paribas, which has tried for years to merge with SocGen, the favourite.

Jérôme Kerviel may yet also be blamed for causing one of the most panic-ridden weeks in the history of the world's financial markets. Did his antics, which led to a €45bn trading exposure, trigger Ben Bernanke, chairman of the US Federal Reserve, to make the biggest cut in American interest rates in more than two decades?

Let's look at how this crisis unfolded. Mr Kerviel's deals were discovered a week ago last Friday. The 31-year-old trader was grilled last weekend by SocGen's chairman, Daniel Bouton, and his senior staff. They took the decision then to unwind his trades, which had been placed on the CAC and Dax indices, on the Monday morning and to close them out over the next few days.

We know Mr Bouton contac-ted Christian Noyer, the Governor of the Bank of France, asking for permission to unwind the trades. But we don't know whether he or Mr Noyer was then in touch with Jean-Claude Trichet, chairman of the European Central Bank, to inform him and seek advice. If Mr Trichet did know, it would be inconceivable that he did not then alert colleagues in Europe and at the Fed. But, if the Fed didn't know and really wasn't told, then that is even more astonishing. It may be that Europe's central bankers did talk informally on Sunday and Monday and decide to give each other the leeway for whatever action they thought appropriate.

But why didn't they tell Mr Bernanke? He explained Tuesday's cut as a response to plunging European and Asian markets on the Monday, which is when SocGen started unwinding its huge positions. Quite rightly, SocGen tried to keep its rogue trader a secret from the markets. But not for long. By Tuesday it was common knowledge in London that a French bank was in serious trouble and this was one of the reasons why the markets were so rattled.

In the US, market watchers are debating Mr Bernanke's actions. Some say he was right to cut so aggressively to halt falling shares and restore consumer confidence. Others argue that if he was spooked into the cut by what was merely technical selling, then he's not quite as sharp as they hoped. Either way, he and the Fed have emerged from this fiasco with a real loss of credibility.

Brains or hunger?

Much has been said about the mathematical and intellectual genius of the French, which has led to their traders leading the world in equity derivatives trading. An early education in Cartesian logic, and rigorous training in quantitative mathematics at les grandes écoles, is accepted as the reason why bankers at places such as SocGen have been making billions for the bank from these complex instruments over the last decade.

But it was none other than Jean-Pierre Mustier, head of investment banking at SocGen, Mr Bouton's right-hand man and boss of Mr Kerviel, who blew this myth apart.

Actually, to be more precise, he once told me: "It's bullsheet." He explained that while French brains are good, they are no better or worse than British brains, and that the French are so good at derivatives because French retail investors like buying shares.

But Mr Mustier, who trained and worked alongside Antoine Paille – considered the father of equity derivatives – added that Anglo-Saxon traders "are still the best. They are hungrier."

For Mr Mustier this fraud is a real failure. His career is now on the line, which is a pity as he's one of the more thoughtful bankers in the capital markets. If he does go, it's right because responsibility must always be taken at the top – an obligation for which the British are often not as fleet of foot as the French.

He's also rather prescient. When we met, he predicted a rash of takeovers and consolidation across the European landscape. This may come sooner than he would have liked.

Betting on bricks

There is a glimmer of light in the gloom. Two companies whose share prices have done well over the past two weeks of roller- coaster trading are housebuilders Taylor Wimpey and Persimmon. Readers will remember I tipped them as good bets two weeks ago. They have risen by 30 per cent to 193.4p and 826p respectively. Time to take a profit?

Alexis Sanchez has completed a £35m move to Arsenal, the club have confirmed
sportGunners complete £35m signing of Barcelona forward
Poor teachers should be fearful of not getting pay rises or losing their job if they fail to perform, Steve Fairclough, headteacher of Abbotsholme School, suggested
voicesChris Sloggett explains why it has become an impossible career path
world cup 2014
Popes current and former won't be watching the football together
Arts and Entertainment
Celebrated children’s author Allan Ahlberg, best known for Each Peach Pear Plum
Wayne’s estate faces a claim for alleged copyright breaches
newsJohn Wayne's heirs duke it out with university over use of the late film star's nickname
Life and Style
It beggars belief: the homeless and hungry are weary, tortured, ghosts of people – with bodies contorted by imperceptible pain
lifeRough sleepers exist in every city. Hear the stories of those whose luck has run out
peopleIndian actress known as the 'Grand Old Lady of Bollywood' was 102
Arts and Entertainment
In a minor key: Keira Knightley in the lightweight 'Begin Again'
Mick Jagger performing at Glastonbury
ebookA unique anthology of reporting and analysis of a crucial period of history
Arts and Entertainment
Currently there is nothing to prevent all-male or all-female couples from competing against mixed sex partners at any of the country’s ballroom dancing events
Potential ban on same-sex partners in ballroom dancing competitions amounts to 'illegal discrimination'
Germany's Andre Greipel crosses the finish line to win the sixth stage of the Tour de France cycling race over 194 kilometers (120.5 miles) with start in Arras and finish in Reims, France
tour de franceGerman champion achieves sixth Tour stage win in Reims
Life and Style
beautyBelgian fan lands L'Oreal campaign after being spotted at World Cup
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Business Analyst Consultant (Financial Services)

£60000 - £75000 per annum: Harrington Starr: Business Analyst Consultant (Fina...

Systems Administrator - Linux / Unix / Windows / TCP/IP / SAN

£60000 per annum: Harrington Starr: A leading provider in investment managemen...

AVS, JVS Openlink Endur Developer

£600 - £700 per day: Harrington Starr: AVS, JVS Openlink Endur Developer JVS, ...

Technical Support Analyst (C++, Windows, Linux, Perl, Graduate)

£30000 per annum: Harrington Starr: A global leader in trading platforms and e...

Day In a Page

A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

A History of the First World War in 100 Moments

Peace without magnanimity - the summit in a railway siding that ended the fighting
Scottish independence: How the Commonwealth Games could swing the vote

Scottish independence: How the Commonwealth Games could swing the vote

In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

A writer spends a night on the streets

Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

UK's railways are entering a new golden age

New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

Conchita becomes a 'bride' on Paris catwalk

Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
Pétanque World Championship in Marseilles hit by

Pétanque 'world cup' hit by death threats

This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
10 best women's sunglasses

In the shade: 10 best women's sunglasses

From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

World Cup final: Messi? Mascherano is key for Argentina...

No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice
Hollywood targets Asian audiences as US films enjoy record-breaking run at Chinese box office

Hollywood targets Asian audiences

The world's second biggest movie market is fast becoming the Hollywood studios' most crucial