This is something I've been meaning to bring up for several weeks now, but other topics kept taking precedence. Jerome Kerviel, the disgraced SocGen trader who was recently sentenced to two years in prison and a €5 billion fine, granted an interview with Der Spiegel which is required reading for all traders or anyone who wants to become a trader.
I know I've made a lot of jokes at Kerviel's expense, but what happened to this kid is no laughing matter. In a rushed attempt to hide managerial incompetence or worse, and to reassure investors that it was an isolated incident, Societé Generale deliberately threw Kerviel under the bus with a vengeance we haven't seen since Kidder Peabody's hatchet job on Joe Jett.
This case speaks to the "What have you done for me lately" attitude present in management at every Wall Street firm. And it's been that way forever, I suspect. It doesn't matter how much you made for the firm last year, last quarter, or yesterday. If you make management look bad they will fuck you up - often before you even see it coming. Hell, Jett didn't know he was being scapegoated by Kidder Peabody until he turned on his TV one morning and saw his bosses (who he had on tape authorizing his trades) telling the whole world he'd committed a quarter-billion dollar fraud.
Always keep in mind that your boss's sense of self preservation will always override any fleeting notions of loyalty to you, and you should manage your own affairs thusly. If you're a real team player, don't be surprised if you're forced to "take one for the team" some day. Trading is a singular pursuit best left to individuals willing to live and die by their own hand. Work hard, try not to color outside the lines, and remember to put enough away so you can die someplace warm.
With that, I'd like to yield the floor to young Jerome, so you can see what management is really made of:
SPIEGEL: In 2005, you were promoted to a position as a junior trader and quickly began to distinguish yourself. How did you accomplish that?Kerviel: I specialized in German stocks. After a few months, I took my first position, on Allianz stock, betting on a fall in the market. At first, I was in the red. But, then, the attacks on London's subways caused stock prices to collapse. The bank reaped €500,000 in profits from my transaction.
SPIEGEL: How did your superiors react?
Kerviel: When I spoke with my supervisor about the deal over lunch, there was a bit of a scolding: As a trader with only six months on the job, I wasn't supposed to take those kinds of positions. Still, right after that, he praised me and increased my freedom to make speculative deals from €2 million to €5 million. That is typical for the contradictory world of the trading room: Risk limits were exceeded on a daily basis. The bosses knew that, but there were never any admonishments.
SPIEGEL: But even with €2 million or €5 million to gamble with, you still weren't satisfied for long.
Kerviel: I continued to raise my stake higher and higher after noticing that my superiors would cover up for me out of their own self-interest and for the benefit of the bank. In late 2006, I established a major short position on the DAX, Germany's stock index, worth several billion euros, which I sold off for a €20 million profit in February 2007. Since the transaction with the Allianz stocks, none of my superiors had taken me to task again. I was making consistently large profits. Within three years, my bosses had raised my targets by 1,700 percent. That shows that they knew exactly what was going on.
Later in the interview:
SPIEGEL: During the trial, executives from Societe Generale testified "that you were in no way authorized, or could not have been authorized by your bosses, to take such risks, which represented a potentially fatal danger to the bank."Kerviel: At no point did they ever say to me: "Jerome, stop it with all this stupidity!" On the contrary, they encouraged me to build up trading positions and take risks. In the summer of 2007, I took a two-week vacation. Every morning, they would call me for advice on how to manage my positions. After just one week, I was forced to come back.
SPIEGEL: Had the risks snowballed out of control?
Kerviel: No. They saw that there was money to be made and insisted that I return.
SPIEGEL: After your vacation, did the bank force you to lower your trading positions?
Kerviel: Just the opposite. At the end of the year, they told me that I was only supposed to make these kinds of trades for the bank and that I would be relieved of all my other responsibilities. They encouraged me to take on risk.
Seriously, guys. Go read the whole interview. It might open your eyes to the fact that there may be no "I" in "TEAM", but there's also no "TEAM" in "JAIL".
Look out for #1. Always.
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They've got to hold those senior people more accountable. He is the face of this scandal and the scapegoat.
The guy had losses in the B's. Yeah, he is going to feel some hurt for that, and he deserves it. There is no excusing it, and he deserved to be fired and have his name dragged through the mud. You are supposed to be smart- smart enough to know when a position can explode on you, and your own self-preservation instinct should reel you in.
Were those senior guys held accountable? Are they still working at Soc Gen? They shouldn't be. At least on the direct management level. It is a French bank though, and the french, like most of Europe, make it hard to fire someone (which then makes businesses quite reluctant to hire).
I totally agree. Obviously he should have never gotten as deep as he did, dumb ass move on his part. But there were managers who encouraged it that we haven't heard anything about.
fucked up shit, yo.
Of course man, managers are motivated to protect their asses. It all comes down to "you vs. me", who do you think "they" will look after, you or themselves? I've seen it several times and had to learn in the real world when I first started out - this industry is purely cut throat. There are NO teams, only publicly expressed sets of behaviors and phrases that provide visual cues of these false believes, but in reality, all the monkey are only looking out for themselves.
Kerviel strikes me as the Howie Hubler of french finance. Both were encouraged to take excessive risks that in hindsight seem absurd (equity derivs were the hottest product at SocGen/BNP). The difference is John Mack didn't annihilate Hubler, which is a rare thing indeed. Remember the guys at Goldman who unwound their CDO positions just in time only to get $5-$15 million bonuses?
I read on Dealbook that when he was busted, he was actually in the black. It was the rapid unraveling of his positions that caused the massive losses.
I have heard this as well. I have also heard that they started unraveling during a period of increased market vol and their selling just made it worse.
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