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01 March 2024

Paying the price for SocGen scandal

By Frank Kane

The “rogue trader” affair at Société Générale becomes more sinister by the day, and it is hard to see now how the bank’s chairman and chief executive, Daniel Bouton, can survive in his position much longer.


The latest revelations – most importantly the fact that it now seems Jerome Kerviel had an accomplice who was aware of his deception and party to his unauthorised transactions – changes the situation radically. Bouton and his senior colleagues at the bank can no longer hide behind the charade that they were hapless victims of a lone maverick. At the very least, they will have to admit that their initial version of events was incorrect.


This admission on its own should be enough to seal their fate, especially as they are trying to persuade shareholders to stump up the €5 billion (Dh21.5bn) cost of the affair. Investors have the right to insist that, if they are to fill the hole Kerviel made in the bank’s balance sheet, they would like a change of personnel at the very top of the organisation. I have written before how the SocGen scandal had all the elements of the Barings collapse of 1995 mixed in with ingredients from America’s Enron collapse, but the most recent facts to emerge put it in a league of its own in the financial scandal rankings. It is turning into the crime of the century.


After Nick Leeson’s fraudulent trading at Barings’ Singapore caused the bank’s collapse with liabilities of $1.7 billion, there was much speculation that, despite the Bouton-like assertions from top Barings management that Leeson acted alone, he must have had an accomplice. The authorities, the corporate forensic industry, and not least the media, went into a frenzy of investigation to find alleged counterparties to Leeson’s fraud.


Banks accounts from the Bahamas to Berlin and Bali were examined in an effort to find where Leeson had stashed his ill-gotten gains, on the theory that he would emerge from prison a wealthy man. Those theories were wrong, and Leeson is now working hard to make a modest living.


The same cannot now be said with any certainty of Kerviel and his friend, Mousa Bakir, who worked at the broking agency Newedge, a subsidiary of SocGen and Credit Agricole. (There are more Enronesque shades here in the use of affiliated corporates to perpetrate the deceit).


The French authorities are studying a mountain of mobile communications between Kerviel and Bakir. On the basis of what we have seen in print so far, it is damning evidence of a conspiracy between the two young traders. “It’s between you and me,” Bakir says to Kerviel, when asked if he has mentioned the trades to anyone. “I made a pile of dough, that’s all,” says Kerviel to Bakir on another occasion. I would love to hear the explanation of that conversation, when Kerviel makes his next plea not to be a scapegoat.

I would also like to hear Bouton explain how his bank’s initial investigation was so quick to conclude Kerviel had not been part of a wider conspiracy. That now looks premature, to say the least.


The revelation that a company linked to the wider French financial system was involved also makes it much harder for any of the domestic French banks, such as Credit Agricole or BNP-Paribas, to take part in a rescue of SocGen.


How can they honestly say they do not have their own versions of Kerviel undetected in a trading room somewhere. With each revelation, the risk of systemic infection increases. Bouton should pay the price for bringing that risk to France.