Wednesday, October 06, 2010

For Jérôme Kerviel, payback’s going to be one frothing bee-yotch on wheels…

There’s now an update to the sorry tale of Jérôme Kerviel. Kerviel, the Société Générale trader who starred in the financial scandal du jour a few years back, and whose wild and crazy trading lost SG about $7 billion, has been sentenced.  He won’t be doing his time on Devil’s Island, so there’ll be no Son of Papillon book or movie, but Kerviel will be in French stir for a minimum of three years. He remains out, pending appeal. (Source: NY Times.)

While in prison, I’m sure he’ll have plenty of time to contemplate the fine that accompanied the relatively wrist-slapping jail sentence. The French courts have levied a fine of $6.7 billion on young (he’s only 33) M. Kerviel.

$6.7 billion. (I keep wanting to type “$6.7 million, which would be fou enough.) But $6.7 billion – c’est incroyable.

Ever notice before how restitution and destitution are nearly the same word? Me neither.

Of course, SG doesn’t really expect Kerviel to make good on their losses:

Caroline Guillaumin, a spokeswoman for Société Générale, said the damage award was a “symbolic” sum that the bank did not expect would be paid.

“But it is important, and we are satisfied, because it recognizes that the entirety of the bank’s losses are attributed to Jérôme Kerviel’s actions,” she said.

I suppose that the ludicrous magnitude of this penalty is supposed to send a message  to rogue traders in the making, but what does it really mean?  That ex-con Kerviel, when he does his time, will have to pay every sou he earns for the rest of his life back to SG? There’s a true incentive for an ex-con to get his act together.

Assuming a year for an appeal, and, failing it, 3 years in prison, Kerviel will be in his late thirties when he’s released. Even if France extends their retirement age, he’ll be looking at a work life of 30 years max. Thirty years @ $223 million/year = $6.7 billion.

I suppose it’s conceivable that Kerviel could turn out to be the French equivalent of Bill Gates or the Sage of Omaha. But unlikely. (Oh, wait. He’s banned for life from financial services, so I guess he can be Gates but not Buffett.)

Even if the fine were only $6.7 million, it would still be nearly mission impossible to pay it back.

A more sensible fine would have been $670,000, which would have hurt plenty, but which could plausibly be repaid.

But the fine is, of course, symbolic – and convenient. Implying, as it does, that the “entirety of the bank’s losses” fall on the head and shoulders of Kerviel – how neatly it removes anyone at Société Générale from the old chain of culpability.

Needless to say, this isn’t lost on Kerviel’s attorney.

Mr. Kerviel’s lawyer, Olivier Metzner, said he would appeal immediately. “This judgment is totally unreasonable,” he said outside the court. “It suggests that the bank is not responsible for anything, that no system of control could have prevented this.”

Kerviel has, of course, maintained that

… his bosses had deliberately turned a blind eye to what he was doing and had tacitly encouraged him as long as it was profitable.

That certainly passes the plausibility test, but there is, alas, no smoking gun.

Thus,

Daniel Bouton, the former chief executive and chairman of the bank, has described Mr. Kerviel as “a crook, a fraudster and a terrorist” who acted alone and nearly destroyed the bank.

France being France, there is a whiff of snobbery about the entire sordid mess. Kerviel is from a less than grand background. His mother was a hairdresser, his father taught shop, and Kerviel was educated at second tier schools. How anguishing that some lesser being was able to pull something over on the privileged grandees from the fancy lycées and high end universities.

Kerviel did plenty of harm, but I wonder how many other rogue traders there were and are out there? And are they going to be deterred by fear of a symbolic fine of $6.7 billion? Probably not. You’ve heard of “too big to fail”?  Sometimes the fine’s too big to have any meaning.

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Pink Slip had a piece on Kerviel in January 2008

 

2 comments:

Anonymous said...

I cannot believe that he got 3 year sentence and have to pay a fine of $7 billion. 1st off no one making less than a million dollar salary should have access to billions for trading, Jerome had a salary of about 40$k and his bonuses were small considering before he lost the bank 7 billion, he made them around 1.9 billion in 2007.  Societe General did not complain when he made them money but when he lost them money, they sue.  And how is that a bank has no idea that there were activities for billions of trades, so does that mean if Jerome tried to embezzle the money he could have easily.  I hate that the judge said that Jerome put the bank at risk and put peoples job at risk, what about these CEOs of citigroup, bank of America, wamu, etc., how can they put  a trillion dollars of deposits at risk, hundreds of thousands of jobs at risk, world economies at risk, and walk out free of any lawsuit, no criminal charges, bail out funds from the governments, and some still got bonuses.

Anonymous said...

I cannot believe that he got 3 year sentence and have to pay a fine of $7 billion. 1st off no one making less than a million dollar salary should have access to billions for trading, Jerome had a salary of about 40$k and his bonuses were small considering before he lost the bank 7 billion, he made them around 1.9 billion in 2007.  Societe General did not complain when he made them money but when he lost them money, they sue.  And how is that a bank has no idea that there were activities for billions of trades, so does that mean if Jerome tried to embezzle the money he could have easily.  I hate that the judge said that Jerome put the bank at risk and put peoples job at risk, what about these CEOs of citigroup, bank of America, wamu, etc., how can they put  a trillion dollars of deposits at risk, hundreds of thousands of jobs at risk, world economies at risk, and walk out free of any lawsuit, no criminal charges, bail out funds from the governments, and some still got bonuses.