€4.9bn fine for man who (almost) broke the bank

Rogue trader made to 'pay for sins of financial world', says lawyer

(REUTERS)

Since January 2008, Jérôme Kerviel has been known as the five-billion-euro man. At 10.30am yesterday, the young trader with the plausible good looks of a lead singer in a boy band became the "177,000-year man" instead.

Kerviel, 33, has always refused to accept that he acted as a "rogue" trader in 2007-8. He admitted that he had once bet €300bn, several times the value of his bank, on the movement of European stock markets. He insisted, however, that he was merely doing what everyone in the financial world was doing – only much, much, more so.

Yesterday, Kerviel was officially branded the most audacious, and dangerous, rogue trader in financial history. A Paris court decided that he was not, as he claimed, an over-enthusiastic victim of a culture of unreasoning greed which had swept not only his French bank but all the world's financial markets. He was, the court, decided, a "cynic" and a compulsive con-man whose "gigantic" unauthorised trades had threatened to "damage the world economic order".

The Tribunal Correctionnel also displayed a grim sense of humour. The young ex-trader was jailed for three years and ordered to repay the €4.9bn that his unauthorised trades lost for the French bank Société Générale (SocGen).

If the young Breton handed over every centime of his present salary of €27,600 a year, it would take him at least 1,770 centuries – until the year 179010 – to pay off the damages.

Kerviel's lawyer, Olivier Metzner, announced that his client was "disgusted" and would appeal. Mr Metzner said that both verdict and sentence were "excessive" and "senseless", because they blamed one man for the dysfunctions of a financial world which had abandoned all touch with reality.

"I have the feeling Jerome Kerviel is paying for an entire system," he said. "I hope you will all donate a euro to Jerome Kerviel."

During his three-week trial in June, Kerviel admitted that he repeatedly broke the bank's rules and pulverised his nominal, trading limits. At one stage, in 2007, he had bet a total of €300bn, three times the entire value of SocGen, on the downward movement of shares on European stock markets.

He disguised the extent of his exposure by making fake trades in the opposite direction. So long as he made immense profits, he said, including a €1.5bn "surplus" in 2007, his superiors said nothing.

He also denied "losing" as much as €4.9bn. Most of those losses, he said, were caused by the panicked unwinding of his positions by SocGen in January 2008.

Kerviel never attempted to steal a centime of the immense sums that he was trading.

Charges of fraud were dropped early in the investigation. He was, however, found guilty yesterday of forgery, breach of trust and loading fake data into computers. He said nothing, but appeared shocked, when the sentence was read out. He was given the maximum five-year jail sentence – with two years suspended – and solemnly ordered to repay all his losses.

The bank's lawyer, Jean Veil, said afterwards that the verdict amounted to a "moral victory" for SocGen.

"It has been clearly established that Jerome Kerviel's behaviour, his lies, were so sophisticated that the bank could not have known what was going on," he said.

Kerviel has become a cult hero in France. He has a fan club and has been the protagonist of a comic book. His story is to be made into a film.

He has attempted to rebuild his life by taking a €27,600 a year job as a computer consultant. In a poll taken just before his trial, more than 70 per cent of French people said that he was a victim rather than a villain.

When news of his gigantic unauthorised trades broke, the world was already trying to come to terms with the magnitude of the sub-prime crisis.

It later emerged that an estimated $47 trillion – that is to say three-and-half-times the size of the United States economy – had been invested, or speculated, in global markets on credit default swaps (insurance policies) largely spinning off from a much, much smaller amount of doubtful American home mortgages.

Financial institutions around the world eventually lost an estimated €1 trillion, plunging much of the developed world into recession.

Kerviel's defence strategy was to try to hide a leaf in a forest. His bets and losses – massive as they seemed – were part of this global culture of frenzied speculation, he said.

During the hearings in June, Kerviel occasionally appeared to annoy the judges by appearing over-confident. On one occasion, he suggested that they could not be expected to understand the complexities of financial futures trading. He admitted that he had "blown a fuse" and "overstepped the limits of the reasonable" but said that there was a culture of systematic rule-breaking at SocGen.

His immediate superiors, his lawyers suggested, must have known that he was taking immense, unauthorised risks. They failed to act, so long as he was making money.

The court was told that an internal report found that his managers had failed to follow up 74 different official alarms about Kerviel's activities.

Loss leaders: The men who took markets for a ride

Nick Leeson

Watford-born Nick Leeson is perhaps the world's most famous rogue trader, and his story has been turned into a film starring Ewan McGregor. Working for Barings Bank in Singapore, he ended up being responsible for the loss of $1.4bn and brought down Britain's oldest merchant bank.

Yasuo Hamanaka

Known as "Mr 5 Per Cent" owing to the share of the world's copper market he was believed to control, Yasuo Hamanaka caused Japan's Sumitomo Corporation to lose $2.6bn as a result of his off-the-book trades, and he was jailed for eight years in 1998.

Toshihide Iguchi

Bosses from Daiwa Bank only found out that Toshihide Iguchi had lost the Japanese bank $1.1bn when he wrote a 30-page confession to his boss. The bond trader, who lived in New York, ended up being sentenced to four years in prison in 1996.

John Rusnak

Baltimore-based John Rusnak caused the Allied Irish Bank to lose nearly $700m after the currency trader, who worked for AIB subsidiary Allfirst, used false options contracts so his losses would go undetected.