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SocGen fiasco to trigger stamp down on middle office moves?

Will SocGen’s rogue trader with ‘deep knowledge’ of its risk control procedures make it harder for middle-office staff to move to the front?

The Financial Times reports that the rogue individual, who made losses of €7bn on European stock futures and mortgage write-downs, was able to get away with it thanks to an awareness of risk control gained from his time in the middle office.

Nic Leeson was similarly endowed with middle-office expertise. And SocGen’s nemesis, Jérôme Kerviel, is unlikely to be alone in knowing how to fiddle the system: risk recruiters say transitioning from risk to trading isn’t uncommon.

“It’s usually the best risk guys who do it,” says one recruiter specialising in risk, “those with a strong educational background, strong product knowledge, and good relationships with the traders.”

Will SocGen’s tribulations make banks more wary of promoting middle-office staff into trading roles in future?

Maybe not. “It’s just a question of having the right controls in place,” says an MD at a leading European investment bank. “SocGen appear to be saying that this guy knew their weaknesses – the point is that there shouldn’t have been any weaknesses.”

Banks may, however, be encouraged to revisit operational risk procedures in an attempt to prevent this kind of thing happening in future.

Paula Maiden, director of financial services recruitment at Robert Walters, says operational risk hiring is already buoyant thanks to regulations like Basel II.

However, operational risk professionals remain the poor relations: “Base salaries are 10-20% less than in market risk, and bonuses are typically 0-50% instead of 50-100%,” says Maiden.

Comments (38)

Comments
  1. What do you expect from the French.

    HAH! HAH! –BANKER Reply
     
  2. well – bouton should be sacked. they clearly did not have proper systems in place. fire the whole management and also the auditors who should be shown the door

  3. Well, I guess this is not uncommon in banks, I am sure there are similar things happening in other banks… Just look at the efficienies of JPM’s Portsmouth Office for example.

  4. Definately a case of the sacker should be the sackee. Keep those body bags rolling….

    Digger in the dirt Reply
     
  5. Jerome give me a call, I’ve just the job for you….

    Desperate Headhunter Reply
     
  6. Hedgie,

    You fail to realise that the auditors probably had a part to play in uncovering the fraud: year end is 31 December 2007 and they should be in there already looking at the books. FYI 2006 auditors were EY and Deloitte.

  7. Frenchs now ranks first in the “Best Trader losses”, with 8.1 Bn, hard to beat ;-)

  8. a result of jobs for the boys …things get over looked …

  9. I cant but help feel that there is more to this Rogue Trader story than meets the eye. The guy was reported to be on a combined salary of 100K which essentially makes him a relatively Junior Trader. No junior trader would be unsupervised and no Junior Trader would even have the ability to make such losses even if he tried. My theory is that Soc Gen have paid him off to accept more losses than the actual amount he lost so that they could cover up massive losses from elsewhere in their business, probably from CDOs.

  10. ey and D&T must be sacked. They didn’t perform their tests of internal controls properly. why are millions of dollars paid to them annually ???

  11. I have to agree with Trader that there is a whiff off a possible cover up from Soc Gen, these guys are not stupid, even if these junior trader has been able to bypass some of the systems, a flag would have been rasied and this is no small change we’re talking about….the auditors have alot to answer for as well, wonder if they will have their contracts ‘reviewed’…..

  12. Hi Jérome,
    if you exist please let us know how much money you received for the blame….SocGen is just trying to find a bizzare way to account huge write-offs never declared before hoping in a turning market! Nothing new, simply French!

  13. So much for genies de naissance with par excellence calcul mental. Even if the bank is piggybacking the guy with hidden losses, what a silly silly excuse!!

  14. this does not reflect well on E&T or Deloittes. they must be made to explain what is their role exactly? why are millions of fees paid to them? fat cat partners who do little value addition while the main audits are done by fresh university graduates is not a viable business model for the banking world.

    sack the auditors Reply
     
  15. lets hope this puts a dent in the reputation of the so called superior french grandes ecoles graduates and recruiters in the UK will give home grown talent from respectable UK colleges a chance.
    On a more serious note, it sounds like this guy was a scape goat for other loses accumulated by other more likeable high profile traders (you seen a pic of the suspected guy on the bbc website?…I certainly wouldn’t wanna have a pint with him!).

  16. It’s JPM Bournemouth not Portsmouth…

    Dave Chaseside Reply
     
  17. Funny how you only hear about these things when they make a loss – does this sort of thing happen more often, but get swept under the carpet and a slap on the wrist if things go the other way?

  18. It has nothing to do with the rogue trader, but many comments concerning the French are hostile and not far from being xenophobic. I feel a certain sense of humour in some comments, but there are others in which this is no joke. When there is a problem for Northerr Rock the comments in France are not ” Look at that, the roastbeefs have big issues and are too bad”. There is no such thing as “look at his face i would not go and ave a drink with him” or “simply french”. Express your ideas, but concerning the financial facts, not the comments about the fact that it comes from someone who is french and that it is well done for the french banks because french people are like this or like that and frenchies deserve it. Because i can be hostile too, saying stupid things at the same level of some of you.

  19. “jobless grad”‘s comment is funny. this guy didn’t graduate from a grande ecole but from a university. jealous?

    When it comes to xenophopic comments,could you please remind us what was nick leeson’s nationality? this is the first rogue trader case involving a french.

  20. “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 bastards.”

    Classic.

    http://www.thedailymash.co.uk/news/business/french-trader-was-forced-to-work-30-hours-a-week-20080125680/

  21. thanks god he wasnt british!!!

  22. Btw Jerome is not on 100K as said above but 100K euros…
    English in banking critise the French way of life because they are jealous…
    So for them if you dont work 80 hours a week at least then you are lazy? I dont think its a joke or something, thats what a lot of them think…
    Most of my colleagues here in London have miserable lives, not seeing their children, spending their time at the desk… so coooolll

    Hopefully most of them have great sense of humour and are not too harsh with the poor lazy French girl i am…

  23. This is a very unprofessional bank with lots of ego and nothing to back it up…so I’m not surprised to be honest. What does surprise me, however, is that the market especially shareholders have not punished them accordingly.

  24. Attn: Youhou: there is a price to be paid for being rude, lazy and arrogant. So when a french bank screws up this big criticism is inevitable. Suck it up sunshine!

  25. Where is the Back Office?
    How can you hide 50 Bln?
    The stock exchange didn’t ask for margins?

  26. You see I am an not British and have a lot of French friends and business contacts. So I have no axe to grind. That said, the dailymash article although somewhat harsh does not seem to be too far from the truth if I listen to what I have heard from former and current SG employees. Clearly what happened at SG can happen anywhere, but then it does not come as a surprise that it happened there. More importantly, this scandal strikes at the heart of the French problem. The country needs to wake up, especially those people who think that money grows on trees. OK France has a great culture, but then those citizens who do not want to work should let those who do get on with it. At the same time those who do want to work should get paid and those who don’t shouldn’t. FRANCE NEEDS TO CHANGE. WAKE UP. If you don’t the country will hit a brick wall in the not too distant future.

  27. They are not the only large french bank to have sloppy internal risk controls over their trades.

  28. British can only afford being broker, cause they are fluent in their own international language. French people respresent 1/3 of the trading floors in London, and the big bosses of majors banks like Citi, JPM etc use to welcome French by themselve during graduates and use to specially congratulate them for being French and so brillant. So please do not feel obliged to open your sarcastic mouths and keep going with your broker jobs. 80h a week is normal for a British cause they do not product anything in their country, French and other European/Asia people are the 90% contributors of the UK’s financial sector growth.

  29. one of the articles i read said that the losses were in equity derivatives – futures to be precise. and i also heard that this guy literally had a large large percent of the outstanding futures contracts of euro stoxx / dow. i wonder how losses in futures could have been hidden – werent there margin calls? and moreover we are talking equities here and i seriously wonder how it is possible to hide losses in equities – that is a simple world as compared to credit in my opinion. i think a lot needs to be answered. atleast i am not convinced about the story that SG is selling.

    laughingbuddha Reply
     
  30. This trader performed fraud. The auditing firm is not engaged to uncover fraud by the employees. This is the responsibility of the company with its Internal Audit department. The auditors are engaged to determine that the financial statements are presented in accordance with GAAP. The auditors do rely to a certain extent on certain internal controls but once again they are not engaged to undercover fraud committed by the employees.

  31. So why do you spell french with a lower case “f” as opposed to an upper case “F”? I guess you don’t held the French very highly as well!

  32. Just waiting for the take over and the following break-up

  33. 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, un 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.

  34. I’ve been calling various front office equity derivatives people at SG and none are even willing to give their mobile number to talk about opportunities…possibly because they are waiting for the bonuses announcement but either way still strange…

  35. All these racist comments about the French are truly frightening. Is this english humour or just stupidity ? This says a lot about the kind of (frustrated ?) people who work in the City. I never hear anything like that against the brits from the French. You have NorthernRock we have SG.

  36. I’m not French but the level of anti-french xenophobia in this forum is appalling. What nationality has to do with all this, I don’t know. Keep your stupid racist comments for the Sun or BNP’s forums, for God’s sake.

  37. Worked for SocGen before, I do not see how this was possible ????

  38. Pathetic SocGen Bouton should be sacked, the guy who sold off his 140m worth company shares charged for dealing on insider information and Kerviel be given a medal for being Scapegoat of the Year. What’s the purpose of SocGen after this – it should be shred to pieces and fed to any willing buyer.

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