Kerviel ‘Crushed’ by Verdict, SocGen Open to Talks

Kerviel Says He Feels ‘Crushed’ by SocGen Verdict
Jerome Kerviel told Europe1 radio today, “I have the feeling like they want to make me pay for all.” Photographer: Antoine Antoniol/Bloomberg

Jerome Kerviel said he feels “crushed by the weight of the punishment,” in his first interview after being sentenced to three years in jail and ordered to repay Societe Generale SA for its 4.9 billion-euro ($6.8 billion) trading loss.

Judge Dominique Pauthe yesterday held Kerviel solely responsible for the loss, saying he deceived the bank in amassing 50 billion euros in futures positions. He found Kerviel guilty on all three counts: breach of trust, forging documents and computer hacking.

“I have the feeling like they want to make me pay for all,” Kerviel told Europe1 radio today. The former trader will remain free pending appeal. Meanwhile, he said he’ll continue working as a computer consultant, a profession he got into after being fired from France’s second-largest bank in 2008.

The trading loss, announced Jan. 24, 2008, prompted Societe Generale’s then-chief executive officer Daniel Bouton to describe Kerviel as a “terrorist.” The court rejected defense arguments that his superiors knew of his actions and that the bank’s decision to unwind the bets over three days of falling markets caused the loss.

The bank indicated it is open to negotiations on the restitution Kerviel was ordered to pay.

“We are a responsible bank and have no desire to drive a man into debt for so many years,” Caroline Guillaumin, a spokeswoman for Societe Generale, said in an interview today with France Info radio. The bank is “totally open” to finding “a solution reasonable to all parties.”

‘Extremely Symbolic’

The 4.9 billion euro award was “extremely symbolic,” she said, adding that it was “too early” to say what will happen, in light of Kerviel’s pending appeal.

The bank’s comments came after government spokesman Luc Chatel said in an earlier interview today on RMC radio that “perhaps” the bank could renounce part of its award.

The Paris ruling came days after a federal court in Manhattan dismissed a U.S. investor lawsuit over the loss. The court said it lacked jurisdiction because the plaintiffs’ shares in the bank were bought abroad, in line with a June ruling by the U.S. Supreme Court. The plaintiffs’ claims the Paris-based bank knew more about Kerviel than it disclosed also “do not give rise to the inference” of knowledge, the U.S. court ruled.

The two favorable decisions close the Kerviel era for the bank, said Pierre Flabbee, a Paris-based analyst at Kepler Capital Markets who has a “buy” rating on the bank.

Loss ‘Behind’ Bank

“The story is pretty much behind Societe Generale now,” said Flabbee. “There was a period, notably in France, when the rate at which accounts were being opened there was less good, this seems to have ended that,” he said.

Societe Generale shares gained 3.6 percent yesterday and another 2 percent today, closing at 43.17 euros in Paris.

France’s Banking Commission fined Societe Generale 4 million euros in 2008 for “serious shortcomings” in its risk controls. A May 2008 report commissioned by the bank’s board faulted its internal monitors, saying Kerviel’s supervisors failed to “react in an appropriate manner to several alert signals” and missed at least 1,071 bogus trades.

“Societe Generale learned the lessons of this affair from the outset, and has committed significant human and financial resources to strengthening all of its controls,” the bank said in an e-mailed statement yesterday, adding “it continues the implementation of its development and transformation strategy.”

Compliance Spending

Societe Generale spent 130 million euros in 2008 and 2009 as part of a three-year plan to enhance risk controls, with more than 200 people working on the project. The program, dubbed “Fighting Back,” includes training 7,800 employees in “fraud awareness,” the bank has said.

Chief Executive Officer Frederic Oudea, 47, in June set a target for Societe Generale to double annual net income to about 6 billion euros in 2012. He’s counting on higher earnings from the French branch networks and growth in Russia to help buoy profit while trimming writedowns at the investment-banking unit.

The corporate-and investment-banking unit, where Kerviel worked, was Societe Generale’s biggest by profit in the first half. The division, which was unprofitable in five out of the past 10 quarters, produced about 44 percent of Societe Generale’s first-half net income while employing about 7 percent of the bank’s 157,000 workers.

Oudea, chief financial officer at the time of the loss, was propelled to the CEO job in 2008 after his predecessor Daniel Bouton’s leadership came into question. Last year Oudea took over the additional role of chairman from Bouton.

Management Shuffle

Oudea has reshuffled the bank’s top management. In 2008, Michel Peretie, the former head of Bear Stearns International Trading, was hired to replace Jean-Pierre Mustier as head of its investment bank. Most of the 14 members of Societe Generale’s executive committee, which guides company strategy, have joined since 2008, according to the bank’s website and annual reports.

Kerviel’s defense went beyond criticizing the bank’s control failures, saying his managers actively knew and encouraged his betting. The court rejected that argument, saying there was no evidence presented that the bank knew the extent of his bets before January 2008.

“My first thought was for my father and for my mother,” Kerviel said, when asked in the radio interview about his initial reaction to the verdict.

Europe1 asked Kerviel if he had irritated the judges by being “arrogant” and “cynical” during the trial. “I don’t think I was,” he responded.

The judges asked Kerviel to enunciate and stop using jargon several times during the three-week trial in June.

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