The trader responsible for the world's biggest banking fraud was questioned about his transactions on a number of occasions but still went on to place a €50bn (£37bn) market bet that lost Société Gé*érale €4.9bn, the French bank said yesterday.
Jérôme Kerviel avoided most internal controls by choosing transactions that did not require cash movements or margin calls and that did not need immediate confirmation. When the bank's system alerted the back office to an anomaly, he simply said it was a mistake, cancelled the transaction and replaced it with something similar.
"When controls came up, most of the time he admitted that it was not a proper transaction and that it was a mistake," Jean-Pierre Mustier, head of SocGen's investment bank, said. "He was replacing it with another transaction of a different nature that would be checked by another department."
M. Mustier said the number of mistakes was no higher than normal for a trader and "was not a reason to ring a bell".
The trader was able to use knowledge of the bank's computer systems gained in five years working in the bank's middle office to hide his bets. As well as selecting certain types of transaction, he used other people's computer access codes to cancel operations and falsified documents.
SocGen unwound the positions on the first three days of last week. The bank said he started to make unauthorised trades at the end of 2006, but that it was not until this month that he placed his massive bets on European stock markets rising. He bet €30bn on the Euro Stoxx index, €18bn on Germany's DAX, and €2bn on the UK's FTSE.
M. Kerviel's trades were discovered on 18 January and the positions were in balance at midday. But as stock markets fell thatday they were makinglosses of €1.4bn. That figure ballooned after the bank started to unwind the positions on Monday as fears of a US recession caused first Asian andthen European stock markets to plunge.
There had been speculation that SocGen's actions helped to cause the market rout, but the bank said it deliberately unwound the positions gradually so that markets were not disrupted. The high volumes caused by the panic meant that SocGen was able to rid itself of the positions more quickly than it might otherwise have done.
SocGen's trades onMonday accounted for 8.1 per cent of volume on the Euro Stoxx, 7.8 per cent on the DAX and 1.7 per cent on the FTSE. The bank entrusted the wind-downof the positions to onesenior trader.
"We were not the cause; we had to submit to it,"M. Mustier said.
The decision to unwind the positions immediately was taken by Daniel Bouton, the bank's chairman.
M. Mustier said that after checking M. Kerviel's positons and those of other traders it was "extremely unlikely" that anyone else was acting with him. "If one trader can unwind this transaction, one person can make such a transaction," he said.
M. Mustier added that he had forgone his 2007 bonus, halved his salary and offered to resign. M. Bouton, who also offered his resignation to thebank's board, declinedthe offer.
He said SocGen would "rebound" from the "massive shock" of the fraud. Others believe SocGen's management – and even the bank itself – may not survive such a damaging blow.