Societe Generale Head of Risk Management

[Hornin Hong Kong]

 

[froghorn717]

(yes....it should be blank)

 

[Uncle Rico]

I think fessing up to not catching $7B in fraud by a jr analyst means your career as a risk manager is pretty much toast but then again they are the french. you could take that country over with a 10-speed and a slingshot.

 

[DCA_HORN]

Even better, he was apparently in the positive at year end. I am looking forward to the book "How to lose $7 bill in 3 weeks".

 

[txeconomist]

From what I’ve read, obnoxiously positive.

 

[froghorn717]

In reply to:

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[Hornin Hong Kong]

treasury at Soc Gen had to write at least some checks - I'm amazed they didnt notice millions in collateral moving around

 

[froghorn717]

I can't take it as my own...it was forwarded to me but:

SocGen Risk Management Department returns to work...

 

[KC-97HORN]

Hornin,

I think from previous posts, this is your area of expertise.

After the debacle of Nick Leeson and Barings losing 1.4+ Billion, how is it that another firm can lose even more to the tune of 5 TIMES the losses Barings took?

I know you guys have multiple levels of review, it just seems unbelievable that no one saw this when it was just the front line trader doing all the moving and shaking.

If it was one or 2 of the supervisors doing the fraud taking this long to see it or find it would have made a lot more sense.

 

[LocoGringos]

Keep in mind, the $7 billion was the loss SG took in closing out the positions. I believe the actual positions were significantly larger than 7 billion.

But then again, Citi just lost almost 20 billion and had to jet around the Middle East begging for money to stay liquid.

 

[hookem2003]

the actual positions represented 50 B.

 

[DMLonghorn]

Yeah, but you guys haven't heard the whole story. Explanatory news article follows...

FRENCH TRADER WAS FORCED TO WORK 30 HOURS A WEEK



FRIENDS of rogue trader Jerome Kerviel last night blamed his $7 billion losses on unbearable levels of stress brought on by a punishing 30 hour week.

Kerviel was known to start work as early as nine in the morning and still be at his desk at five or even five-thirty, often with just an hour and a half for lunch.

One colleague said: "He was, how you say, une workaholique. I have a family and a mistress so I would leave the office at around 2pm at the latest, if I wasn't on strike.

"But Jerome was tied to that desk. One day I came back to the office at 3pm because I had forgotten my stupid little hat, and there he was, fast asleep on the photocopier.

"At first I assumed he had been having sex with it, but then I remembered he'd been working for almost six hours."

As the losses mounted, Kerviel tried to conceal his bad trades by covering them with an intense red wine sauce, later switching to delicate pastry horns.

At one point he managed to dispose of dozens of transactions by hiding them inside vol-au-vent cases and staging a fake reception.

Last night a spokesman for Sócíété Générálé denied that Kerviel was overworked, insisting he lost the money after betting that the French were about to stop being rude, lazy, arrogant ********.

 

[Hornin Hong Kong]

@KC - apparently he would create fictitious trades to offset his real trades so the net position would be zero and the net p/l would be zero.

The way futures trading works is you buy a contract and put down a small amount of collateral and then pay off daily losses and gains.

Now I can see how he could hide it internally from the trading auditors if he was in fact a middle office guy but his actual trading parters externally would need to get money transferred for collateral - surely a dude that makss 100k euros a year doesnt have much leeway in that. Th money would flow and someone in finance would notice it. I think.

If I lose a million bucks at my job people are curious as to why and I need to have an answer.

SG failed on a number of levels, traing, finance, risk management, security.

I think they just weren't up to standard. I'd like tosay it couldnt happen at my company but who knows. I'd have to say I doubt it but Im sure SG thought the same.

 

[froghorn717]

I mentioned in a different post he was trafficking in Forwards, a contract in which cash isn't usually exchanged at initial transaction.

These derivatives are settled for cash usually at the end of the term but in some cases if collateral was used and your margin requirements are getting out of whack they can be settled before the set time period.

He was placing these forwards on various indexes across Europe. He was supposed to make small bets on the direction of the various markets with the appropriate offsetting hedge. He was trying to make a name for himself and the offset to balance his book was usually the false trade.

I have traded Forward Contracts in the past; they are not for the faint of heart.

There will be more to come out about this subject.

 

[Ampoliros]

Yeah, it sounds like he was essentially gambling with other people's money. He must have been intending ultimately to defraud them. Gamble with their money, while claiming you are taking hedging positions. If gamble succeeds, obviously the hedging positions would reduce their profitiability, so you could just steal the resulting profit difference, and no one would know (theoretically), since they think you bought into the hedging positions. I could imagine that someone could steal quite a lot of money this way, or completely destroy their company if the gambles didn't pay off.