Société Générale / Jérôme Kerviel rogue trading loss

Forged hedges made a 50 billion euro bet look flat. The 4.9 billion loss was real.

The fifth quadrant, where the thing was never real. The tell is that the story is too clean.

Room: Q-F Fraud
Year: 2008
Impact: €4.9B
Sector: Investment banking
Region: Europe
Category: Economic

Why this room

The exposure was real; the book was not. Kerviel carried directional positions of roughly €50 billion while entering fictitious offsetting trades, deleting and re-entering hundreds of false transactions and producing forged emails, so that the bank's own risk picture showed a desk operating inside a €125 million end-of-day exposure limit. The classic qf tell is present in the P&L: his declared 2007 result was a plausible €55 million while €1.4 billion of gains sat concealed, a story too clean for the risk actually being run. The €4.9 billion figure is a real loss, but it crystallised on the forced unwind, not on the fraud itself, which is why the entry belongs in the fraud room rather than the market-loss room.

The record

Société Générale announced a final loss of €4.9 billion on 24 January 2008; the Cour de cassation definitively confirmed that figure in its decision of 19 March 2014.certain
The €4.9 billion is the net of a €1.4 billion concealed profit carried into 2008 from unauthorised 2007 positions, less a €6.3 billion loss on unwinding the positions set up in the first weeks of January 2008.certain
On 19 and 20 January 2008 Société Générale discovered concealed positions totalling some €50 billion, more than the bank's entire capital; the positions were unwound over three days from Monday 21 January 2008.certain
Kerviel's Delta One desk, which had eight traders, operated under a global end-of-day exposure limit of €125 million; his unauthorised positions had reached €30 billion during 2007.certain
Kerviel's declared 2007 profit was €55 million against a fixed salary of €48,500 and a requested bonus of €600,000, while the €1.4 billion of actual concealed gains remained invisible to his managers.certain

Sources

The book

This entry is one of 111 in the register. The full story, and what it cost the people who lived it, is in Risky Business by Claudia Zeisberger, David Munro and Joanna Reijgersberg-Siew.

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