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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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Comments (7)

I think I see a trend:
Jerome went long on futures; Amaranth was bullish on natural gas;
Long Term Capital was bullish on Russian bonds; Yasuo (Sumitomo) was bullish on copper: A L L banks were bullish on ABCP, CDO, SIV,etc BUT only Goldman went short and profitted. Even they were not that smart, GS just had better risk controls.

The trend is : too lose big money go long in a bear market.
Seem like we're in the mother of all bear markets.

David S. ---- I think you may see it correctly; this week's drop is only a false bottom caused by the too quick unwinding of the french position.
Unfortunately it could be just a precusor to bigger problems.

How on earth can anyone in their right mind tell the difference between what this one guy was doing from what everyone else who does the same thing every day in this 600 trillion dollar whatever it is does?

Putting a face on the functionary who was playing with 70 billion whatever kind of concretises stuff. But, please, who is going to compare his 'losses' with the 'write downs' at Citi Merrill and who knows where else? What's a write down if not a leveraged bet gone bad?
Roy Mehta profile picture
yes, there are a lot of questions that need to be answered at SocGen. If this guy can do it, who knows what else people have done to cover up positions? I traded that Sunday night/ Monday morning when the european markets opened and there was a massive sell-off on their open (Germany's I think). The ER2 went down like 3.5% in the first minute. Are there traders at SocGen that understand market depth?
Jerome is going to end up writing a book and making millions too.
It is time for another Republican led depression. I actually emailed Cramer all summer about this but he wouldn't listen. Additionally the Economist magazine had many articles on the curent problesm since 2004. Maybe even before that but I wans't readint it. It is really too bad that the Administration and Congress are asleep at the switch. They are just too comomfratable with all the special interest money .
26 Jan. 2008
Quoting Soros is the best way to undermine any hypothesis. His partisan motivations and ambitions make anything he says sound deeply suspicious and far outweighs his financial reputation.

How come the wisdom of Societe Generale management's decision to unwind such a damaging position in one day is not being questioned?
Soros is an idiot who got lucky once.
David Schrader profile picture
Could it be implied then that the "bottom" people are discussing that was apparently put in place that day was actually a sham? Which would then mean we have yet to see the actual sell-off. I'm still in the bearish camp.

Anyone else... Thoughts? Ideas? Great places to eat in NYC?
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