Who Is Jerome Kerviel?

Jan. 25, 2008 8:56 AM ETSCGLY, SPY, DIA, XLF7 Comments
Eben Esterhuizen profile picture
Eben Esterhuizen

That's probably what the Fed chairman said Thursday morning when he woke up and saw the headlines. As it turns out, Jerome Kerviel is a 31 year old Frenchman who enjoys judo and sailing. He worked as a trader at Societe Generale, and somehow managed to lose almost €5 billion in a series of complex, concealed deals on European stock derivatives. Kerviel's colleagues described him as a "computer genius" who was allegedly able to hack into the bank's computers to hide his reckless trading.

The Fed didn't know about Kerviel's shenanigans when they cut interest rates by 0.75% on Monday, and it now looks like the Fed's biggest emergency rate cut ever may have been sparked by a lie. Events unfolded like this: Kerviel screwed up on Friday last week, when he failed to disable the bank's automatic alert system, and his irregular trading suddenly showed up. Societe Generale's bosses grilled him on Saturday night, and the bank's management decided to unwind all the out-of-money trades on Monday. The unwinding of such a massive position put immense pressure on the futures market, and it started looking like a manic Monday. Other traders saw the plunge in futures amid massive and mysterious selling, and even though the U.S. markets were closed for Martin Luther King Day, they start selling everything else.

With U.S. traders away from their desks, the sell orders in an illiquid market caused a bigger than expected shock to prices. There is no doubt that the unwinding of Kerviel's positions contributed in a big way to Monday's dramatic slump in world stock markets. Things got progressively worse in the hours leading up to Tuesday's U.S. market opening, and Bernanke played his ace card, cutting interest rates by 0.75% in an attempt to prevent a stock market meltdown.


This article was written by

Eben Esterhuizen profile picture
Eben Esterhuizen lived in London and Paris before receiving his B.Sc. degree in Actuarial and Financial Mathematics in his home country South Africa. After completing his studies he moved to Los Angeles to pursue a career in marketing, but soon drifted back to finance. His biggest passion is music, and he has worked as a DJ on radio stations in South Africa and the UK. Eben's other interests include skydiving, rugby, Arsenal football club and PJ Harvey. He now works on Wall Street as a financial news analyst and covers solar investments for The Panelist (http://thepanelist.com/).

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