Rogue trader cashed in on 7/7 bombings

Patrick Hosking and Miles Costello
Times Online
Feb. 02, 2008

Jérôme Kerviel claims to have got his first taste of unauthorised trading after making a €500,000 profit as a result of the London bombings 2½ years ago.

Mr Kerviel told investigators that he had placed a bet that the share price of the German insurer Allianz would fall. It paid off in July 2005 when the Tube attacks, which killed 52 people and injured more than 700, triggered a sharp fall in share prices across Europe.

“My first experience of this kind goes back to 2005, when I took a position on Allianz shares, betting on a drop in the market,” Mr Kerviel said in comments published in Le Monde and confirmed as genuine by a judicial offical. “It so happened that a little later the market fell as a result of the attacks on London and it was a jack-pot of €500,000,” he said.

Kerviel said that he created a fictitious operation to conceal his winnings, which proved to be the start of a spiral of bets and cover-ups that ended with losses of €4.82 billion for the French bank Société Générale last week.

If his version of events is true, the revelation means that Mr Kerviel began his series of unauthorised bets within months of being promoted to the role of junior trader. He was also betting on individual stock prices, as well as index futures. “More than anything, I wanted to earn money for the bank. That was my first motivation,” Mr Kerviel told investigators, explaining how he forged e-mails and documents to cover up his actions.

Mr Kerviel also claimed that his secret trading book swung from huge profits to losses and back again. In July last year he had racked up losses of €2.5 billion, he claimed, but by December he had more than reversed the deficit and was sitting on hidden profits of €1.4 billion.

Betting on insurance company share price movements is a common way of wagering on overall market movements as the two tend to track each other. Insurers’ share prices usually go up when markets rise and they fall in tandem too.

On the fateful day, share markets plunged in the immediate wake of the carnage. Allianz shares were massively hit, plunging from €97.25 when the market opened to a low point of €92.95 and later rallying to close at €95.20.

Analysts said yesterday that Mr Kerviel could have made a fortune from taking “down” bets on the Allianz share price during that frenzied period of trading. While appearing heartless, speculators and traders often pile in and out of shares in the immediate aftermath of shocking world events, hoping that they are better informed than the average.

The quickest speculators can make money by betting that shares will fall and the bravest by betting that they will overshoot and bounce back, as in fact happened later in the day on 7 July.

In Wall Street mythology, one Goldman Sachs trader is said to have made billions of dollars on September 11, 2001, when he saw the second plane crash into the twin towers and – a split second before everyone else – realised this was therefore a terrorist attack and not an accident, one that would send markets plunging.

In Mr Kerviel’s case, he appears to have taken out his position before the bombings and the tragedy, which caused so much suffering, was just a lucky financial break for him rather than smart anticipation of events.

When his rogue trading was finally discovered 12 days ago, Mr Kerviel was deep in the red again, but he told prosecutors that he was still confident he could have traded out of his difficulties. “What I couldn’t have guessed was that I would no longer be working for Société Générale,” he said.

He claimed that his bosses at SocGen must have been aware he was placing tens of billions of euros in risky futures trades.

“Day to day, as part of normal trading with normal levels of investments, a trader cannot generate that much cash,” Kerviel said. “Which leads me to believe that when I was in the black, my hierarchy was turning a blind eye towards the details and the sums involved.

“It suited them to let me earn money,” he said. He said that he was repeatedly challenged about high-risk operations but that each time he produced fictitious documents to cover himself – and that they were readily accepted by the bank.

“Their passivity pushed me to carry on . . . and I was quickly sucked into a spiral that I couldn’t find a way out of.” Mr Kerviel also revealed resentment against the bank and jealousy of his colleagues, saying, “I understood from my first interview with them in 2005 that I was far less respected than others considering my university background and my personal and professional experience.”

The trader was charged on Monday with breach of trust, using false documents and unauthorised computer access, but judges did not approve the more serious charge of fraud.

SocGen has insisted that Mr Kerviel acted alone and managed to circumvent risk-management controls by using stolen computer access codes and fictitious documents.

SocGen’s board yesterday rejected calls from President Sarkozy for top executives to lose their jobs, giving chief executive Daniel Bouton their backing at a board meeting meeting.












All original InformationLiberation articles CC 4.0



About - Privacy Policy