Societe Generale Trader Will Stay in Police Custody
By Gregory Viscusi
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Jan. 27 (Bloomberg) — Jerome Kerviel, the trader accused of losing 4.9 billion euros ($7.2 billion) at Societe Generale SA through unauthorized dealing, will remain in custody for a further day as police question him.
“Kerviel’s custody has been renewed for another 24 hours,” Isabelle Montagne, a spokeswoman for the Paris prosecutor, said. Police now have a deadline of tomorrow afternoon to charge or release him.
Societe Generale, France’s second-largest lender by market value, handed investigators information about Kerviel on the evening of Jan. 25 as part of the probe. The lender says the losses, the biggest in banking history, occurred when Kerviel set up positions in futures linked to European stock indexes and then hedged them with fictitious trades.
Societe Generale says the positions were in balance at midday on Friday Jan. 18. As European stock markets fell on average almost 2 percent that day, the positions were making losses of 1.4 billion euros by the evening, when Societe Generale managers first became aware of the fraud. As the bank moved to unload the positions Monday, a day when fears of a U.S. recession sent European stock markets down on average 7 percent, the losses ballooned to 4.9 billion euros.
The numbers were given by Societe Generale Chairman Daniel Bouton in an interview with Le Figaro and confirmed by the bank.
Financial Brigade
The Paris police’s financial brigade began questioning Kerviel, 31, yesterday at their offices in the southeast of the city, Montagne said in a phone interview. Kerviel arrived at the brigade’s headquarters in the 13th arrondissement at about 2 p.m. yesterday in a gray car, which drove through an underground garage entrance.
Under French law, police can hold him for two consecutive periods before deciding whether to let him go or charge him.
Societe Generale on Jan. 24 filed a lawsuit with the Nanterre prosecutor against “a 31-year-old person” for creating fraudulent documents, using forged documents and making attacks on an automated system, according to a spokeswoman for the prosecutor.
The investigation was transferred to the Paris prosecutor on Jan. 25. That day police visited both Kerviel’s apartment in the Paris suburb of Neuilly-sur-Seine and the bank’s headquarters in the financial district of La Defense.
Societe Generale voluntarily turned over documents to the police, spokeswoman Stephanie Carson-Parker said by phone.
Bank Reorganization
Elisabeth Meyer, Kerviel’s lawyer, wasn’t available to comment. No one has answered the phone in her office throughout the weekend, and she hasn’t responded to messages left with her offices since Jan. 25.
Meanwhile, the bank named four executives who will lose their jobs or be transferred as a result of the losses, which Societe Generale blames on fraud perpetuated by Kerviel. They are Luc Francois, co-head of global equities and derivatives solutions; Jean-Pierre Lessage, head of the resources division; and Marc Breillout and Gregoire Varenne, co-heads of fixed income, currencies and commodities.
The four will “either leave the group or move to other positions,” the bank said. Kerviel is in the process of being fired.
Kerviel built a virtual company within Societe Generale, bank officials said. He balanced each bet with a fictitious one for almost a year. He was caught because he exceeded the allowed limits with a counterparty whose limits, unknown to him, had recently been changed, a bank official who asked not to be named said. Bank officials worked throughout the weekend to uncover the extent of his montage.
Government Probe
French Prime Minister Francois Fillon has asked Finance Minister Christine Lagarde to deliver a report this week on how Societe Generale suffered the trading loss. The Bank of France is also carrying out an investigation.
Lagarde said her probe will focus on why the bank’s internal checks failed and whether financial companies should be forced to impose more controls on their businesses.
The trader, whose father and grandfather were ironworkers, grew up in Pont l’Abbe, a town of 8,200 in Britanny, western France. Kerviel, a green-belt judoka, attended high school at the Lycee Laennec. He went to work in Societe Generale’s back office in 2000 after completing a degree in market operations at the University of Lyon II.
Kerviel spent his childhood in a white house with a slate roof and a triangular, peaked front based on the traditional Breton style, with a small front yard. Jerome’s father, Charles, built it about 30 years ago and then constructed his workshop attached to it, according to neighbors.
Breton Background
Charles, who died a couple of years ago, was an ironworker, making pieces for furniture and ships mainly. Jerome’s grandfather, Charles’s father Laurent, was in the same trade, making items for furniture and horseshoes, the neighbors said.
Tangi Hourmand, a 33-year-old childhood friend of Jerome, said Kerviel had always wanted to go into finance, describing him as “very intelligent.” “He was a normal guy who liked to go out,” Hourmand said.
To contact the reporter on this story: Gregory Viscusi in Paris on gviscusi@bloomberg.net ;
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