He is the man who nearly broke the bank … and who is fast becoming a hero to millions of his compatriots. Jérôme Kerviel, the 31-year-old trader whose fraudulent stock market transactions last week cost his employers Société Générale £3.7bn, was yesterday in a Paris police station after being taken into custody around 2pm by French financial police who managed to get him past journalists waiting at the gates without being spotted.
Lawyers for Kerviel said yesterday that their client was ‘entirely prepared to co-operate with the authorities’.
This weekend France has become polarized around the unlikely figure of the taciturn, clean-cut man behind the biggest ‘rogue trader’ scandal of all time. Three hundred miles west of Paris, in his home village of Pont-l’Abbé at the tip of the Brittany peninsula, Kerviel is a hero – particularly among the ladies in the hair salon his mother used to own.
‘He was your ideal son-in-law,’ said 62-year-old client Martine Le Pohon, who remembers Jerome helping his mother out on Saturdays at Un Monde Imagin’ Hair. ‘And if it turns out that he has stood up to the system to the tune of €5m, well, as far as I am concerned, that makes him even more ideal.’ Maryvonne Even, 40, said Kerviel was a scapegoat. ‘He was probably caught fiddling – a bit – and the bosses decided to blame him for all their losses,’ she said.
But it is not just the famous local Breton solidarity. In France, where there is a profound popular distrust of big finance, strong opposition to ‘international capitalism’ and a belief in the ‘French model’ as opposed to ‘savage Anglo-Saxon Liberalism’, the views of the ladies in the Pont-L’Abbé hair salon are widespread.
For Isabelle Mercier, 44, queuing outside Société Générale in eastern Paris, the ‘rich and the powerful’ always find someone to blame. ‘Anyone who is a threat to them is eliminated one way or another.’ Mohammed Benali, a market trader at the nearby Marché d’Aligre, agreed. ‘It is time the bosses and the rich were taken down a peg,’ he said.
Some go further. The French Communist party compared Kerviel to Alfred Dreyfus, the French Jewish army officer whose disgrace and imprisonment after being unjustly accused of espionage is one of the greatest and most divisive causes célèbres in the nation’s recent history. On the internet, scores of messages expressing admiration have been posted on impromptu sites. The affair has been politicized further by the revelation that Kerviel had once been an activist for France’s ruling right-wing UMP party. The government of Nicolas Sarkozy, already under fire for being too close to major French financial figures, has been forced onto the defensive. For Michel Sapin, the Socialist party’s economy and tax spokesman, the scandal was ‘the symbol of mad money’.
Details continue to emerge of Kerviel’s background and how he became the biggest individual financial fraudster in history. Described as a ‘fragile soul with an extraordinary talent for dissimulation’ by his bosses, he grew up in an impeccably kept modern semi-detached house with granite finishings, a dainty rose bed and white picket fence on the outskirts of Pont-L’Abbé, a town of 7,000.
Kerviel’s mother, Marie-Jose, sold her salon two years ago when her husband, a metalwork teacher, died suddenly from liver cancer. The shock of his father’s death is said to have badly affected the young man whose wife is reported to have left him shortly afterwards. Neighbors said Mrs Kerviel had gone to Paris to see her son ‘several days ago’.
On his most recent CV, obtained by The Observer, Kerviel lists his hobbies as sailing and judo. Philippe Orhant, his former judo teacher, described the young man as ‘a very centered, focused personality’. Nicolas Gessant, a former high school class mate, said Kerviel had not been particularly brilliant at school. ‘He was a good mate; fun. But it was when he started studying economics for the baccalauréat that his talent came out,’ Gessant said. ‘Later, when he began doing Economic Sciences at the [nearby town of] Quimper, he turned out to be brilliant.’
According to his CV, Kerviel studied at Nantes University and then at Lyon. Joining ‘SocGen’ in 2000, Kerviel spent two years in the back office learning about the bank’s security systems. From 2002 to 2004, he was a ‘trading assistant’, working on the complex European derivative products SocGen had pioneered.
His CV backs up the impression of a dry, introverted, brilliant but distant young man. ‘He spoke very little, answering questions with nothing more than a yes or a no,’ said one colleague. Yet he rose steadily, finally becoming a trader in March 2004, specializing in the esoteric products his bank was known for – derivatives on European markets, on the relatively low salary of £75,000. He worked hard and kept a low profile. According to friends, he had not taken a holiday since April last year.
The crisis broke nine days ago, on a Friday evening. Kerviel had already left the La Défense offices of the bank for his modest flat in the upmarket Western Parisian suburb of Neuilly-sur-Seine and was called on his mobile phone. An anomaly in one of his trades had been discovered. Other such problems had been discovered before but the young trader had always been able to explain them as a banal arithmetical error. Unaware of the gravity of the situation, managers arranged a meeting with Kerviel for the next morning. At 3am on Sunday, Jean-Pierre Mustier, head of SocGen’s investment-banking unit, finally began to realize the extent of the disaster. Kerviel had exposed the bank to potential losses of tens of billions. Throughout Sunday all the trader’s transactions were traced and at 6pm the board convened and informed. The decision was taken to close the positions Kerviel had taken as soon as possible.
‘It was like the Towering Inferno. On Friday they realized there was a fire in the basement. On Saturday and Sunday they realized how big it was. Then they called the fire brigade and from Monday to Wednesday everyone worked at putting it out,’ said a source close to the bank.
Even at this late stage, the losses could have been limited. According to bank sources, Kerviel had begun to take increasingly risky positions, betting on the movements of the market, throughout 2007, covering himself by inventing fictitious transactions that would, if they had actually existed, balanced the risks he was taking. Constantly staying one step ahead of the bank’s own security staff through luck, guile and his own knowledge of the systems meant to be monitoring him, he would have actually made the bank money if he had closed his positions on 31 December.
Kerviel’s motives are still unclear. Some have argued he was hoping to boost his bonus – a mere £1,200 last year – others that he was involved in a massive insider trading ring. For the moment, there is no evidence of either, though investigations are continuing.
Daniel Boutin, SocGen CEO, said the trader’s motives were ‘incomprehensible’. For this month, it appears Kerviel began to deliberately take losing positions, perhaps hoping to rebalance the books before discovery. But the young trader had not bargained for the collapse of the markets in the first days of 2008. His position had suddenly become a potential loss of bankrupting scale.
For SocGen, secrecy was paramount. If what was happening had leaked, they faced a run on the bank and total disaster. French regulatory authorities were informed – but not the government itself. The bank maintains that it began to sell the positions taken by Kerviel on Monday morning, a delicate operation that continued until late on Wednesday. If the markets had risen on Monday, SocGen would have lost relatively little. But they did not. Asian markets plunged, the European markets followed and, with Wall Street shut, SocGen found itself selling at a growing loss. By Wednesday, with the mini-crash staunched by the American interest rate announcement, the bank had lost huge sums of money but had avoided total disaster.