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30 May 2024

SocGen was in mortal danger: central banker

By Agencies

France's central bank chief has given glimpses of the drama played out when Société Générale discovered huge hidden deals, as the trader blamed for the scandal told AFP he refused to be cast as a scapegoat.


Central bank governor Christian Noyer told members of the French parliament on Tuesday that positions run up by trader Jerome Kerviel had been "potentially mortal" for Société Générale, the second-biggest French bank by capitalisation.


Kerviel, speaking exclusively to AFP in his first interview since the bank revealed losses of €4.8 billion (Dh26bn), said he was only partly to blame.


"I was designated [as solely responsible] by Société Générale. I accept my share of responsibility but I will not be made a scapegoat for Société Générale," he said.


Kerviel described media coverage of his role in the crisis as "really oppressive", but stressed he was neither "suicidal nor depressive."


"I never had any personal ambition in this affair. The aim was to earn money for the bank," said Kerviel, who is under investigation for allegedly falsifying documents but not for fraud.


"You lose your sense of the sums involved when you are in this kind of work. It's disembodied. You get a bit carried away," he added.


The scandal has made the bank the subject of takeover speculation, led to parliamentary hearings, and to questions about the efficiency of risk controls at Société Générale in particular and in trading rooms in general.


On Tuesday, Noyer explained his role in averting a possibly even bigger crisis for the bank, and potentially broader repercussions, as details of the scale of the problem emerged on the weekend of January 19 and 20.


Société Générale had become concerned on the Friday about trading positions taken out by Kerviel. The bank's own investigators eventually unravelled unauthorised deals with total potential exposure for the bank of €50 billion (Dh271bn), far in excess of the bank's shareholder funds.


The solvency of the bank had been put at risk because the unauthorised deals exceeded permitted risk exposure and were leveraged, meaning that if the markets moved in an unfavourable direction, the losses could be huge.


Noyer had already told members of the French senate that, on January 20, he had agreed to the principle that the bank rapidly unravel these positions, which it did discreetly over the next three days. Stock markets, to which most of the contracts were connected, fell heavily during that period.


He told the senate finance commission that his objective in accepting the unwinding was "financial stability" and "to protect the customers" of the bank.


The secret of the bank's problems was kept within a tiny circle of people until the deals had been closed.


When the bank revealed the disaster and the resulting net loss on Thursday January 24, it also said it had already obtained investment bank guarantees for a future operation to raise €5.5 billion (Dh30bn) of extra capital.


Noyer told members of the National Assembly that the decision by the head of Société Générale, Daniel Bouton, to unwind the positions as soon as possible was "reasonable".


"If there had been a true crash [on stock markets] with a fall of 20 or 30 per cent, one imagines what would have been the effect on the bank." Referring to the exposure of €50 billion (Dh271bn), he said the figure had been "potentially mortal" for the bank.


"My overriding concern... was to act so that the problem was dealt with and a solution put in place in the shortest possible time so that there was no announcement without a solution," Noyer said.


The French government has objected to being informed only on the Wednesday, as were the New York Federal Reserve Bank and European Central Bank.


"I watched very carefully over the dissemination of information. I restricted the information to a small handful of colleagues," Noyer said, adding that only four people at the central bank knew about the problem.


Noyer said that he had kept the information close "not because I didn't have confidence in the others, but I considered that segregation of the information was the best protection to avoid any risk of carelessness.


"My role was not to bring along a problem without a solution but to carry a problem and the beginning of a solution," he added. (AFP)