Societe Generale SA’s account of how it lost 4.9 billion euros ($6.2 billion) unwinding positions taken by Jerome Kerviel was “completely incoherent” and led Philippe Hoube, a back-office employee at Newedge brokerage, to look into the affair to expose an “injustice,” he told a Paris court today.
Hoube presented his review of the liquidation of Kerviel’s account, showing differences in the amounts transferred between Kerviel’s account and that of Maxime Kahn, who did the unwinding, that could have shown the bank preserving Kerviel gains for itself and dumping its losses into the Kerviel basket, he said.
Kerviel, 35, is appealing his 2010 conviction for causing the loss. Kerviel said Hoube came to him and his lawyers recently with his account. Kerviel last week spoke to the court of a possible plot to use him to siphon away the bank’s subprime mortgage losses. Judge Mireille Filippini ordered them to produce documents supporting the allegation and then for Hoube to appear before the court to explain his theory.
When asked why Societe Generale would have done that, Hoube said, “to save their jobs, perhaps.”
From Hoube’s post at Newedge Group, he said he didn’t know the name Kerviel nor that Kahn was liquidating his account.
The anomalies noted by Hoube were due to him having an incomplete picture of what was occurring, said Claire Dumas, head of operational risk at the bank. “Your analysis doesn’t take into account forwards,” used to transfer the results in a simple manner given the time constraints in getting Kerviel’s positions back within Societe Generale’s accepted risk levels.
Hoube asked her at what point in the operation were all the open positions closed. “In terms of risk, we considered that we had unwound the positions by Jan. 23,” Dumas said. There remained some “residual positions” that fell “within the normal risk limits” and they were resolved over the next two days, she said.
Kahn testified today before Hoube, and called his theory “absurd.” He said he was “absolutely” sure he didn’t sell any positions but those in Kerviel’s account, though he also explained that he was told only that it was for a client who had to remain confidential. He said that throughout the three days from Jan. 21, 2008, “never for a moment” did he realize what was really afoot.
The secrecy was necessary because had the markets known Societe Generale was selling off 50 billion euros in positions, the bank could have faced a liquidity crisis, he said.
Kerviel was sentenced to three years in prison and ordered to repay the full amount to the bank. He has persisted in his claims, maintained since 2008, that his superiors knew he was exceeding limits on his trading desk and disguising the exposure with fake hedges, fending off questions with fake documents and made-up clients.
The appeal hearings are scheduled to conclude June 28.