As if the stock market turmoil of the last few days weren't enough, news emerged today that 31-year-old Jerome Kerviel has just become the Nick Leeson of the 21st century, blowing a €4.9bn hole in Société Générale's balance sheet.
Details of what exactly happened are very sketchy but it looks like Kerviel was cultivating an increasingly large uncovered position - effectively betting that the market would rise, and doubling up when the index moved against him. Very similar to what Leeson did in Singapore in the early 1990s (his Rogue Trader is a pulp classic if you haven't read it.)
SocGen's losses are an order of magnitude greater than what Leeson inflicted on Barings in the mid-1990s - the difference is that Barings was tiny by international standards and collapsed as a result of Leeson's antics, whereas SocGen is a major multinational player and will, incredibly, still manage to turn a profit despite the huge losses on Kerviel's trading.
All of which makes the London Lite free paper's assertion that Kerviel caused the global stock market crash by spooking the market with huge volumes of unorthodox-looking trades somewhat hard to swallow, to say the least. €4.9bn is big money to most of us, but compared with the scale of losses from the sub-prime fallout, it's tiny beer. Still, if you get your news from London Lite you deserve to be misinformed.
Amazing, though, that over a decade after Barings, a major bank did not have basic safeguards in place to stop this happening (separation of front and back office operations, anyone?) More on this as more of the details come out.
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