Our eyes were already glazed over when we finally turned our attention to the the report released by Société Générale on the Jerome Kerviel scandal. The ocular varnish hardened to opaque as we skimmed through blather about how almost everything had gone right, everyone had done things well, and it was just a few bad eggs. It confirms much of what we had already concluded—that the back office lacked the knowledge and spine to really control the risk of the traders. “In some cases, according to the report, controllers who asked Mr. Kerviel about irregularities in his trades didn't understand his explanations, but they dropped their inquiries,” the Wall Street Journal writes.
We woke up a bit when we read the Journal’s summary of the report: “The findings are likely to prompt widespread soul-searching within the banking sector.” Cue laughter.
But what really got our attention and tore the scales from our eyes was the chart attached to the report. Kerviel, according to SocGen, hid his real profit and loss by displaying an "official" P&L that was very small by comparison. After the jump, we bring you the chart.
Below, the dotted, nearly horizontal, line is the official P&L. The jagged, volatile line is the real P&L.
Chart via Alea and Felix Salmon.
Société Générale Details Lapses [Wall Street Journal]
Posted by Anal_yst , Feb 21, 2008 4:06PM
So, if I'm reading this right, the guy was 1bn E in the black before they "found him out", at which point they, in "unwinding" his positions, caused the massive losses, and blamed Kerveil for it?
Oh, how french.
Posted by guest , Feb 21, 2008 4:26PM
Perhaps Jerome/Timmay was using the Black Ho's pricing model instead?
http://www.portfolio.com/news-markets/national-news/portfolio/2008/02/19/Black-Scholes-Pricing-Model#page1
Posted by guest , Feb 21, 2008 4:26PM
oooh la, les francaise
Posted by onetwo , Feb 21, 2008 5:06PM
@Anal_yst
Yup, you gotta love those french. Easy solution: slowly unwind positions with easy, give Jerry a bonus. Difficult solution: freak out and sell $50bn in one day.
god i love the french...they practically write the jokes for us.
In other news, I simply dont buy that no one saw 50bn in exposure. Even if he was "hedged" and thus neutral there was still 50bn on the bank's/desk's exposure sheet.
Also, Carney, you gotta fix this auto-logout thing. It's rediculous.
Posted by Bulging Bracket , Feb 21, 2008 5:06PM
WSJ says that he closed his positions and had almost E1.5B in profit, and then he blew his brains out in January. Very odd.
This looks more and more like the Bank panicked and shot themselves in the head with their idiotic trading.
Posted by Anal_yst , Feb 21, 2008 5:15PM
I love how they release that chart, and they STILL continue to blame the "rogue trader", as if its not completely obvious to anyone with eyes that he had very little, if any, hand in their nightmarish unwind.
Posted by lemmerdeur , Feb 21, 2008 5:41PM
Here's some soul searching for you: the trading geniuses who decided to dump the whole thing in one day, let alone a US holiday, shouldn't be allowed anywhere near a trading desk.
Posted by Bulging Bracket , Feb 21, 2008 6:02PM
So all of Europe is going out of business...
The German financial industry is in crisis as nearly all the landesbanks look to be insolvent. Great article bringing it all together at Spiegel http://www.spiegel.de/international/business/0%2C1518%2C536635%2C00.html
Posted by guest , Feb 21, 2008 6:03PM
"Jer-K" is like every other rogue trader in history: "Oh shit he/she was making a profit and then they made him/her get out!!" I wish I had a Euro for everytime I've heard that apology for rogues. If he was such a fucking great frog trader, why'd he have to keep it a secret from everyone? Ya think T Boone sits around figuring out ways to adjust his risk management system?? Oh wait...he does in a way...he goes on TV and talks his oil and gas book as "important information" for all. Now that will change the mark in his book at the end of the day. (Note: T Boone is a true BSD and good all around person and in no way is he a rogue.)
Sincerely,
Jimmy Crack Korn, East Texas Gas Trader
Posted by guest , Feb 21, 2008 11:55PM
There's something screwy about that chart. Notice the flat line before the eventual big dump. The flat line indicates to me that he had ZERO positions on for at least a few weeks. And then he suddenly puts on an enormous position that gets unwound in dramatic fashion within a few days.....
The whole thing looks odd.
Posted by Chuck Krug , Feb 22, 2008 8:45AM
analyst> Kerviel bought 1000's of DAX contracts at 7370, 7380, 7450 and 7470
(+- 50000 contracts) in august