Forex Forum to Share, Discuss, Communicate and Trade Forex

Have the masters of the universe lost their kryptonite

Daily Forex Analysis by FXCC is posted in this sub-forum.

Have the masters of the universe lost their kryptonite

Postby alayoua » Thu Sep 15, 2011 2:19 pm

Happy Lehman day! Have the masters of the universe lost their kryptonite, or just their marbles?

On October 5th 2010 there was an audible gasp in the French courtroom at the historic Palais de Justice when the ‘rogue trader’ Jérôme Kerviel was convicted of a breach of trust, computer abuse and forgery. The 33-year-old was convicted of all three charges and was sentenced to five years’ imprisonment, with two years suspended.

It was not the ‘severity’ of the sentence that drew the gasps and sharp intake of breath, it was the damages, set at €4.9bl to Société Générale, this was the total sum of money his risky betting strategies cost his former employers in January 2008. The Brittany-born computer expert was described as a quiet cynical operator who exploited his technological knowhow and market understanding to fool his employers. Exposing the bank to uncovered trades worth €50bn, more than Société Générale’s total share capital at the time.

“The varied nature of his means of forgery and deceit were rivalled only by the dazzling reactivity, the constant cool-headedness and the deceptive serenity which he was able to exhibit on an everyday basis,” said the judge. On reflection it may have been more appropriate if the gasps had been replaced with laughter, whilst massive the symbolic damages award was preposterous, if the idea was to send out a message then to who and how? The lenient sentence alone would not serve as a deterrent.

Irrespective of his actions the bank was later part of an ECB bank bail out, despite which its share capital currently stands at only €14 billion. It could be argued that the ‘criminals’ who have lost circa €38 billion of their bank’s value this year are simply the usual suspect mixture of incompetents and blusterers of the banking fraternity and we’ve now come to accept this tight brotherhood will always escape punishment. However, small investors, pension fund managers and retirees might not be so accepting, they would no doubt put the current management of SocGen first in the queue for an appointment with Madame Guillotine ahead of Jérôme Kerviel.

Many commentators could be forgiven for treating with suspicion the allegations that have emerged this morning suggesting that another rogue trader has apparently run amok ultimately causing an unauthorised loss of circa $2 billion. As a result of this unspecified loss UBS, Switzerland’s biggest bank, may now be unprofitable in the third quarter. This is the bank that had to raise circa $45 billion from investors after the investment bank division recorded 57.1 billion Swiss francs ($65 billion) in cumulative pretax losses in three years through 2009. There will be inevitable calls for the investment arm of the bank to now shrink dramatically or close.

Source: FX Central Clearing Ltd. (FXCC BLOG)
User avatar
Senior Member
Posts: 483
Joined: Wed Jul 20, 2011 6:27 am

Return to FXCC Daily Forex Analysis


Who is online on Forum

Registered users: Alexa [Bot], Baidu [Spider], Bing [Bot], Google [Bot], Google Adsense [Bot], Majestic-12 [Bot]