Feb. 13 (Bloomberg) -- Jerome Kerviel's unauthorized trading at Societe Generale SA ruined the chances of French bank clerks getting promoted to the trading floor, headhunters say.

Kerviel, 31, became a trader at Societe Generale in 2005 after spending five years in the compliance and control section of the bank's so-called middle office. Last month, the Paris- based bank blamed him for trading losses of 4.9 billion euros ($7.2 billion).

``The middle office won't be a springboard to become a trader anymore,'' said Gael de Roquefeuil, an adviser for financial industry headhunting at Korn/Ferry International in Paris. ``Career bridges were already difficult and at least for the short term they are completely over.''

French traders are typically recruited from the elite ``Grandes Ecoles,'' such as the HEC School of Business on the outskirts of Paris, not the University of Lyon II, where Kerviel earned a Masters degree in banking support, the recruiters said. Societe Generale said Kerviel's knowledge of the bank's control systems allowed him to hide 50 billion euros in bets on European stock index futures.

Back and middle-office jobs, which involve supporting traders with administrative, compliance and risk-management tasks, earn 60,000 to 120,000 euros a year, including bonuses, while top traders can make up to 4 million euros, said Vincent Riotte, head of Paris-based Demos, a firm that trains financial professionals.

Bonus Money

``Some of those who did well in the back and middle offices have always been attracted by the idea of earning more money at the front office,'' said Charlotte Joffre, a risk-control expert at Lyon-based Riskedge, a foreign-exchange consulting firm. She's also a lecturer on risk at the University of Lyon II, where Kerviel graduated in 2000.

Kerviel told prosecutors during his interrogation on Jan. 26 and 27 that he'd hoped for a 2007 bonus of 600,000 euros. He said the bank indicated that it would be closer to 300,000 euros. Prosecutors said the lure of a bonus motivated him to make bets that exceeded the bank's limits.

Kerviel, who admitted to backing trades with fake hedges, told Agence France-Presse on Feb. 5, ``I am taking my share of responsibility, but I will not be the scapegoat for Societe Generale.'' He was charged with breach of trust, falsifying documents and hacking into the computers of France's second- largest bank. Kerviel was incarcerated on Feb. 8.

Delta One

France's top banks have about 1,500 traders, a Paris-based banking research center said in a 2007 study. As many as 30,000 traders worked in London in 2007, according to the Financial Services Authority, Britain's financial regulator.

Jean-Pierre Mustier, the head of investment banking at Societe Generale, said Kerviel didn't take the ``usual path to the trading floor.'' The bank hires traders straight from university with degrees in math or finance, Mustier said on a Jan. 27 conference call with reporters. Kerviel was promoted in recognition of his ``excellent'' work, Mustier said.

As a trader, Kerviel worked on the Delta One desk, specializing in European stock market index futures. His job was to make bets on small price differences between contracts, not to trade on the markets' direction, Mustier said.

Liquidating his trades in Germany's DAX Index and the pan- European Euro Stoxx 50 led to a loss five times Nick Leeson's $1.4 billion shortfall that brought down Barings Plc in 1995.

``Kerviel knew the back office very well, exactly like Leeson,'' said Shaun Springer, chief executive officer of London-based Napier Scott Executive Search Ltd. ``After Kerviel, it's very, very difficult for middle-office staff to move on as traders.''

`Rigorous Independence'

Prosecutor Jean-Claude Marin told reporters that Kerviel drew on the knowledge he acquired from his middle-office work, sometimes using colleagues' passwords to get his trades through. He covered his trades with fictitious deals backed by falsified documents, Marin said.

On Feb. 4, presenting the results of her investigation into the scandal, French Finance Minister Christine Lagarde called for stronger divisions between front and back offices at banks. ``It would be fitting to keep watch over a rigorous independence between front-office and control units,'' she said.

Most of the members of Kerviel's 24-student class at university had internships with top financial institutions. About 11 percent of those who've been through the program since it was established in the 1980s, ended up with front-office positions, some in trading, according to a student-association survey of more than three-quarters of former students.

Banks may increase training and compensation for middle- office employees because of the Kerviel case, said de Roquefeuil.

``French financial institutions underpay their mid-back office universe compared with equivalent functions at U.S. and U.K.-based rivals,'' he said. Recruitment of risk managers and middle-office personnel may reach a record in 2008. ``The sophistication of front-office products makes middle-office personnel very important.''

To contact the reporter on this story: Fabio Benedetti-Valentini in Paris at fbenedettiva@bloomberg.net.

Last Updated: February 13, 2008 04:21 EST