Once again, a huge and prestigious financial institution is shaken to its foundations by an individual acting alone, causing enormous financial losses and threatening the stability of world markets.
As Jerome Kerviel enters the gallery of rogue traders alongside the likes of Nick Leeson and Peter Young, it is hard to avoid the conclusion that the executives in charge of the stricken institutions the “rogues” targeted were simply not doing their jobs properly. Their supervisory and control mechanisms, when faced with a determined individual with authority to deal in multi-million assets, were distracted by the glamour of running these huge financial empires.
As the French authorities try to piece together exactly what happened at Société Générale, we will know the answer to that question soon enough – and the executives responsible will have to answer in full. The threat to their careers, their reputation, even their financial security and liberty, is serious.
But there are some other general lessons to be learned from past “rogues” that SocGen executives would be well-advised to learn very quickly.
The first is that the “victim” bank, whether it is Barings in the case of Nick Leeson or Morgan Grenfell in the case of Peter Young, invariably undergoes rapid transformation, usually accelerating a process that was already in train before the crime itself.
Barings, of course, went spectacularly bust in 1995 after Leeson ran up £850 million (Dh3.11bn) of secret losses in equity derivatives in Singapore. The bank was eventually sold to the Dutch firm ING for £1 and after a 200-year history of financing the British Empire from the City of London, ceased to exist as an independent entity. For Barings, the transformation could not have been more conclusive.
Yet long before Leeson began his subterfuge in Singapore, financial experts had been questioning whether the small, independent bank had a future when faced with the power of the big American and European banks opening in London. Leeson gave Barings a spectacular, but inevitable coup de grace.
Soon after, Peter Young, a star asset manager in the London offices of Morgan Grenfell, owned by the giant Deutsche Bank, ran up hundreds of millions in losses on trades with companies he himself had set up and run as a means of increasing business.
When his fraud was uncovered, he was fired, of course, and a police investigation launched, and Deutsche acted quickly to bring Morgan Grenfell under the tight supervision of German HQ in Frankfurt. Yet again, this was a process that had been under way ever since the German first took over Morgan Grenfell in 1989 – the Young scandal simply put Morgan Grenfell out of its misery.
The other lesson worth learning is that all the participants in the scandals – the rogues themselves, but also their supervising executives and investors in their companies – will find the episode a traumatic, life-changing experience, and not a happy one.
Leeson served three years in prison in Singapore, survived cancer treatment there and suffered other emotional and psychological trauma. He now makes a living on the international speaking circuit, warning others of the dangers of the “rogue” mentality. Young was prosecuted by the police for fraud, but never stood trial – he was declared insane and unfit for legal process.
But all executives caught up in the scandal had their lives changed beyond recognition. Just to have been at Barings or Morgan Grenfell at the time was a mark they would carry with them forever, and many had to change careers altogether just to make a living.
The “rogue trader” it seems, is a phenomenon that comes back to afflict the financial world with depressing regularity – and he never leaves it as he found it.