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.
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.
"It is wrong to talk about an individual," says Roger Steare, corporate ethics expert at Cass Business School in London. "There are many Kerviels. The system is dysfunctional and corrupts good people; the lack of principals in financial services encourages this behavior." Nor is the worship of Kerviel warranted, he feels. People will lose jobs and homes in the SocGen aftermath. "How can there be any pride in that?" he asks.
Kerviel – and his defense team – helped dramatize his plight when he broke a two-week silence to say he was refusing to be made a "scapegoat." Now he has Facebook fan clubs, a website, T-shirts saying "I bet on Jerome," and a Wikipedia entry.
In public opinion, the bank never seemed to recover from its early portrayal of itself as victim. It didn't take long for rival bankers and pundits to question how such an august institution could be had by a single second-tier trader.
On Jan. 18 the bank's compliance officers began to suspect the scam. Five days later, after unraveling Kerviel's trades, SocGen officials broke news of an "exceptional fraud" in a press event where they simultaneously presented a solution – a 5.5 billion euro capital campaign in which Bouton's prestige factor would play a key role, thus keeping him indispensable. Unnamed bank officials hinted that day to the media that Kerviel may have suffered from some kind of family trauma. A grainy bank ID mug shot introduced to the public a glowering Kerviel that the French daily Le Monde later said made him look like a serial killer.
Perceptions changed when Kerviel gave an interview two weeks later to Agence France-Presse. He said he wasn't suicidal or depressed, adding, "I never had any personal ambition in this affair. The aim was to earn money for the bank. You lose your sense of the sums involved when you are in this kind of work."
Meanwhile, it turns out SocGen actually lost 6.3 billion euros, but Kerviel's other trades made a 1.4 billion gain, netting the 4.9 billion loss.
By early February, Bouton started facing more specific questions about bank mistakes. French prosecutors said the German derivatives exchange Eurex had raised flags about the trader the previous fall. Critics said the bank exacerbated the losses by panicking and unwinding Kerviel's trades in the midst of a three-day market free fall.
Bouton also got testier. He said he had no interest in meeting the 31-year-old. "Why would I have had the idea of meeting him? I'm not an auditor, I'm not a psychologist, I'm not a doctor.... Why devote two minutes to meeting him?"
Bouton is regarded as the "elite of the elite of the elite" in France, as one source said. Some journalists argue the Kerviel affair has shaken Paris's exclusive upper circles: If the banking elites failed to detect Kerviel's moves, they seem out of touch; if they were complicit, something SocGen disputes, they would appear dishonest. As the dust and questions settles, experts say, Kerviel and Société Générale will likely both end up the culprits, for different reasons.
Kerviel "was clearly talented," says Mr. Mesnooh. "But genius? Maybe not. There's going to be some balancing between his ability to circumvent the system, and the extent to which the bank didn't pay attention to the warning signs."