Fraud shakes up France's financial elite
Lone trader becomes unlikely 'hero' in world's largest banking loss as roles of villain and victim blur.
On Jan. 24, Société Générale, France's No. 2 bank, revealed it had been the "victim" of $7.2 billion in losses. The bank stated that a single junior trader in its famed futures division, Jérôme Kerviel, played with $75 billion over two years and hid what is the largest loss in history.Skip to next paragraph
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Now, one month, thousands of stories, and countless debates later, roles of villain and victim have blurred in France, sympathies have shifted – and with new details every day in "l'affaire Kerviel," culpability may not be settled for months.
Popular blame has migrated from Mr. Kerviel, who has become a romantic outlaw-hero figure since he didn't personally enrich himself – to the bank, particularly its chief, Daniel Bouton, a corporate star who ironically made his reputation as a guru of managing the complexities of modern firms. Mr. Bouton this week repeated he will not resign.
On Tuesday, Bouton was hammered by French president Nicolas Sarkozy, who stated, "I've got nothing against [Bouton]. But you can't say 'I'm going to be paid 7 million euros a year,' and then, when there's a problem, say 'It's not me.' "
A Société Générale interim audit released last week spelled out failed internal controls. But neither it nor a French finance ministry report singled out SocGen officials for blame or culpability, citing an ongoing criminal investigation; the PriceWaterhouseCoopers-aided audit found as many as 75 warning signs.
Here the main story has been about how a regular guy – the son of a hairdresser from the provinces – could shake a proud Paris institution studded with pin-stripe elites.
Kerviel became a sympathetic underdog. Bouton, who Jan. 24 described Kerviel on Radio France Inter as "this crook, this fraudster, this terrorist," by Feb. 12 revised his comment to the Financial Times, saying, "Sympathy is always on the side of Robin Hood."
"Initially people screamed, how could a 31-year-old trader bet 50 billion euros [Kerviel's total exposure] without anyone knowing about it?" says Christopher Mesnooh of the law firm Hughes, Hubbard and Reed, in Paris. But soon, "the fact that he almost brought down the bank was secondary to the fact that he was trying to do his job. He was an easy person for the French to want to defend.... A provincial kid trying to make good in the big city."
Kerviel is under preventive detention outside Paris on preliminary charges of falsifying documents and breaching trust and IT controls.
Kerviel's story is remarkable not for its deceptiveness, but for the sums involved. The rampant culture of ambition and "casino capitalism," the scandals in the financial services sector, continue unabated despite lamentations. The futures division in Société Générale had grown to make up an estimated 20 percent of the bank's profit.