November 17, 2010

Interview With Rogue Trader Jerome BKerviel - 'I Was Merely A Small Cog In The Machine'

Background: Jerome Kerviel has been called the biggest gambler of all time. The 33-year-old Frenchman established positions worth up to €50 billion in bets on the development of the German stock market. At first, he earned billions in profits for his employer, Societe Generale, but then he began losing and became a symbol of the financial crisis. At the beginning of October, he was sentenced to five years in jail, two of them suspended. He was also ordered to pay damages of €4.9 billion. The judge ruled that he had fraudulently manipulated his computer and concealed his trades from his colleagues with offsetting transactions. Kerviel has appealed. He claims to only have used methods that he learned as an employee of Societe Generale.

The fall of Societe Generale trader Jerome Kerviel became symbolic of the entire financial crisis. In October, he was sentenced to five years in jail for losing almost 5 billion euros of his employer's money. In an interview with SPIEGEL, he says his bank knew exactly what he was doing and that his trades were nothing unusual.

SPIEGEL: Monsieur Kerviel, in early October, a Paris court sentenced you to five years in prison, with two suspended, and ordered you to pay €4.9 billion ($6.7 billion) in restitution to Societe Generale, the French bank and trading house where you worked from 2000 to 2008. How did you react to the sentence?

Jerome Kerviel: I see it as a major injustice. It felt like someone had repeatedly whacked me over the head with a bludgeon -- at first with the five years of imprisonment, and then with the multi-billion euro fine. And the bank has been cleared of all complicity.

SPIEGEL: At your current salary of €2,300, you would have to work over 177,000 years just to pay the fine.

Kerviel: The judge simply adopted the line of reasoning used by the lawyers of my former employer, Societe Generale. This judgment doesn't factor in any of the mitigating circumstances that we presented during the trial. People obviously were trying to protect the bank and the financial community in Paris. And, to do so, Jerome Kerviel had to be "shot down."

SPIEGEL: The Paris daily Le Figaro described you in the courtroom as follows: "A lonely man takes deep breaths, sitting groggily with hanging head." Were you really that surprised by the court's decision?

Kerviel: It pulled my legs right out from under me, it was so unexpected. At first, I was paralyzed. More than anything, I was anxious on my mother's behalf that I would have to go straight to prison. The whole affair has been very upsetting for her. I don't understand the verdict; it negates the financial crisis and rests the blame on me alone. We presented the court with evidence that many traders had been doing things in a way similar to how I did them and that my bosses knew what was going on. And then the bank is cleared of all complicity...

SPIEGEL: The court, however, didn't buy your defense. Your fine is the same amount that your employer says it lost in unwinding the open, unauthorized positions on your trading book in a three-day sell-off in January 2008, when markets were plummeting worldwide. Never before has a bank employee caused so much damage by betting on stock prices.

Kerviel: In the process, I didn't make a penny, I didn't enrich myself personally and I didn't commit any fraud. I only wanted to be a good employee who generated as much profit as possible for his employer. I was merely a small cog in the machine -- and now I'm suddenly supposedly the main person responsible for the financial crisis.

SPIEGEL: In 2005, you were promoted to a position as a junior trader and quickly began to distinguish yourself. How did you accomplish that?

Kerviel: I specialized in German stocks. After a few months, I took my first position, on Allianz stock, betting on a fall in the market. At first, I was in the red. But, then, the attacks on London's subways caused stock prices to collapse. The bank reaped €500,000 in profits from my transaction.

SPIEGEL: How did your superiors react?

Kerviel: When I spoke with my supervisor about the deal over lunch, there was a bit of a scolding: As a trader with only six months on the job, I wasn't supposed to take those kinds of positions. Still, right after that, he praised me and increased my freedom to make speculative deals from €2 million to €5 million. That is typical for the contradictory world of the trading room: Risk limits were exceeded on a daily basis. The bosses knew that, but there were never any admonishments.

SPIEGEL: But even with €2 million or €5 million to gamble with, you still weren't satisfied for long.

Kerviel: I continued to raise my stake higher and higher after noticing that my superiors would cover up for me out of their own self-interest and for the benefit of the bank. In late 2006, I established a major short position on the DAX, Germany's stock index, worth several billion euros, which I sold off for a €20 million profit in February 2007. Since the transaction with the Allianz stocks, none of my superiors had taken me to task again. I was making consistently large profits. Within three years, my bosses had raised my targets by 1,700 percent. That shows that they knew exactly what was going on.

SPIEGEL: And then you had delusions of grandeur and began gambling with billions.

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