Jerome Kerviel’s 50 billion euros ($61 billion) in unauthorized trades were a “catastrophe” for Societe Generale SA, former chief executive officer Daniel Bouton told a Paris court yesterday. The trader said he’d made “moronic” mistakes that weren’t crimes.
France’s second-largest bank by market value lost 4.9 billion euros in the process of liquidating Kerviel’s accounts over three days in January 2008 as markets fell worldwide.
“Fifty billion euros is monstrous,” Bouton said, standing before the court, two chairs from where Kerviel sat. “It was a catastrophe.” Kerviel’s actions were “genius, evil perhaps,” Bouton said as testimony drew to a close at the three-week trial. “He created a fraudulent enterprise inside the bank.”
Kerviel, 33, is accused of abuse of trust, faking documents and hacking the bank’s computers to hide positions that exceeded his mandate with faked hedges. Kerviel has argued his superiors were aware of and condoned his bets. Bouton resigned as chief executive officer in April 2008 after a 5.5 billion-euro capital raising campaign, and stepped down as chairman in 2009.
Societe Generale’s risk controls weren’t adequately attuned to looking for dangers within the bank, Bouton said. “We did not look enough at operational risks,” he said. When examining Kerviel’s activities, “we had a tendency to believe him.”
Still, there was no sign the bank “facilitated him, applauded him,” Bouton said. Kerviel’s ability to continue operating after reprimands in 2005 and scrutiny by controllers was a “failure of control,” not a sign the bank let him carry on.
Kerviel has admitted to the court that he faked hedges to hide his bets, misled controllers and made up figures so that his account book would tally with expectations, to avoid suspicion at the bank. These were “professional errors,” not crimes, he said.
After Bouton left, Judge Dominique Pauthe repeated the first question he asked Kerviel when the trial began on June 8, saying: “Who are you?”
“I am someone who tried to do his job as well as possible, to make money for the bank,” Kerviel responded, repeating his position since the beginning of the investigation two and a half years ago. “I never wanted to do something bad.”
“Now I see it was moronic, completely,” Kerviel said. Told this was his last opportunity during the trial to explain himself to the three judges, he said: “That’s it.”
The former trader’s unauthorized trades could have bankrupted the bank, testified Maxime Kahn, who liquidated the positions. It was “bad luck,” that the unwinding took place as markets worldwide fell, he said.
“It was impossible to wait,” Kahn, now head of European trading at Paris-based Societe Generale, said. There was the “potential for the bank to go bankrupt.”
The trial ends June 25 with closing arguments scheduled over the next days. Kerviel risks as many as five years in prison if convicted and a 375,000-euro fine.