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?

PROMOTED VIDEO
Life and Style
tech
Arts and Entertainment
Joel Edgerton, John Turturro and Christian Bale in Exodus: Gods and Kings
filmDirector said film would 'never have been financed' with ethnic minority actors in key roles
News
people
Life and Style
tech Manband spurn Spotify to stream album exclusively with Google
Sport
footballArsenal 2 Borussia Dortmund 0: And they can still top the group
News
Andy Murray with his girlfriend of nine years, Kim Sears who he has got engaged to
peopleWimbledon champion announces engagement to girlfriend Kim Sears
News
ebooksNow available in paperback
Arts and Entertainment
George Mpanga has been shortlisted for the Critics’ Choice prize
music
News
Albert Camus (left) and Jean-Paul Sartre fell out in 1952 and did not speak again before Camus’s death
people
Arts and Entertainment
Roisin, James and Sanjay in the boardroom
tvReview: This week's failing project manager had to go
News
Ed Miliband visiting the Holocaust museum in Jerusalem. The Labour leader has spoken more openly of his heritage recently
newsAttacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But are the barbs more sinister?
Arts and Entertainment
'Felfie' (2014) by Alison Jackson
photographyNew exhibition shows how female creatives are changing the way women are portrayed in advertising
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Ampersand Consulting LLP: UI Designer/ User Interface Designer (UI, User Flow, Design)

£6000 - £60000 per annum + Bonus and Benefits: Ampersand Consulting LLP: UI De...

SThree: The benefits of Recruitment at SThree...

£18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...

h2 Recruit Ltd: Head of Regional Sales - Financial Software - £130,000 OTE

Negotiable: h2 Recruit Ltd: A rapidly expanding, global Software/ SaaS Vendor ...

SThree: Trainee Recruitment Consultants

£20000 - £25000 per annum + OTE £Competitive: SThree: SThree Group and have be...

Day In a Page

Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

It's in all our interests to look after servicemen and women who fall on hard times, say party leaders
Millionaire Sol Campbell wades into wealthy backlash against Labour's mansion tax

Sol Campbell cries foul at Labour's mansion tax

The former England defender joins Myleene Klass, Griff Rhys Jones and Melvyn Bragg in criticising proposals
Nicolas Sarkozy returns: The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?

Sarkozy returns

The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?
Is the criticism of Ed Miliband a coded form of anti-Semitism?

Is the criticism of Miliband anti-Semitic?

Attacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But is the criticism more sinister?
Ouija boards are the must-have gift this Christmas, fuelled by a schlock horror film

Ouija boards are the must-have festive gift

Simon Usborne explores the appeal - and mysteries - of a century-old parlour game
There's a Good Girl exhibition: How female creatives are changing the way women are portrayed in advertising

In pictures: There's a Good Girl exhibition

The new exhibition reveals how female creatives are changing the way women are portrayed in advertising
UK firm Biscuiteers is giving cookies a makeover - from advent calendars to doll's houses

UK firm Biscuiteers is giving cookies a makeover

It worked with cupcakes, doughnuts and macarons so no wonder someone decided to revamp the humble biscuit
Can SkySaga capture the Minecraft magic?

Can SkySaga capture the Minecraft magic?

It's no surprise that the building game born in Sweden in 2009 and now played by millions, has imitators keen to construct their own mega money-spinner
The King's School is way ahead of the pack when it comes to using the latest classroom technology

Staying connected: The King's School

The school in Cambridgeshire is ahead of the pack when it comes to using the latest classroom technology. Richard Garner discovers how teachers and pupils stay connected
Christmas 2014: 23 best women's perfumes

Festively fragrant: the best women's perfumes

Give a loved one a luxe fragrance this year or treat yourself to a sensual pick-me-up
Arsenal vs Borussia Dortmund: Alex Oxlade-Chamberlain celebrates century with trademark display of speed and intuition

Arsenal vs Borussia Dortmund

The Ox celebrates century with trademark display of speed and intuition
Billy Joe Saunders vs Chris Eubank Jnr: When two worlds collide

When two worlds collide

Traveller Billy Joe Saunders did not have a pampered public-school upbringing - unlike Saturday’s opponent Chris Eubank Jnr
Homeless Veterans Christmas Appeal: Drifting and forgotten - turning lives around for ex-soldiers

Homeless Veterans Christmas Appeal: Turning lives around for ex-soldiers

Our partner charities help veterans on the brink – and get them back on their feet
Putin’s far-right ambition: Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU

Putin’s far-right ambition

Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU
Tove Jansson's Moominland: What was the inspiration for Finland's most famous family?

Escape to Moominland

What was the inspiration for Finland's most famous family?