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?Reuse content