Is Jerome Kerviel, the young trader who lost billions of dollars for France’s Societe Generale bank, a criminal? Or merely the product of a system that encouraged risky bets when the market was at its hottest — and helped create the subsequent global meltdown?
Kerviel, 33, went on trial Tuesday on charges of forgery, breach of trust and unauthorized use of a computer. If found guilty, he could serve five years in prison and be fined $450,000. His former employer, a civil party to the criminal case, is asking for $6.6 billion — the amount Kerviel’s bets lost before Societe Generale shut him down in January 2008.
His memoir, which came out last month, is selling well — as are Kerviel T-shirts. But he’ll never be able to pay that amount; he now works at a computer technology company, making about $2,700 a month. His lawyer, Olivier Metzner, says Kerviel was a pawn who was used by those in power and then discarded.
For some in France, the titans of global finance are on trial as much as Kerviel is.
“The Kerviel affair symbolizes the wind of madness that swept through the financial planet, and provoked the flurry that still shakes the global economy,” wrote Dominique Quinio, editor of the daily La Croix.
“Kerviel is here to set the record straight on what happens everywhere. He pushed the system to the maximum,” said Frederic Fernandes, 45, who stood in line to squeeze into the packed Paris courtroom.
Kerviel has admitted making bets that exceeded the entire value of Societe Generale, but insists his superiors knew and encouraged him — until subprime market losses at the end of 2007 no longer made it profitable. He was fired, and the former head of the bank referred to him as a terrorist.
Societe Generale was fined by a French banking commission for insufficient control of its system in the Kerviel case, and it has since spent $180 million to improve its fraud alert system. But Jean Veil, lawyer for Societe Generale, said the court case is only about what he called Kerviel’s lies.
“Nobody thought that someone could transform the bank into a casino,” Veil said.
Marc Touati, an economist and general director of the Paris-based brokerage Global Equities, said France has a history of class warfare and looking for scapegoats.
Societe Generale, like banks all over Europe, didn’t understand the complex positions of some of their star traders, but the errors were human, he said. “It stops there. It is a waste of time to make this a symbolic, larger trial,” he said.
But with Europe still struggling to right itself two years after the downturn, many people are inclined to look higher up the corporate chain for guilty parties.
“There’s a deeper anger among public opinion in regard to the financial sector and its real or supposed responsibilities on the economy,” said Bertille Bayart, a business writer who is also chief editor at Le Figaro.
Nicolas Veron, an economist at the Bruegel Center, a Brussels-based economic think tank, and visiting scholar at the Peterson Institute for International Economics, also said he saw larger lessons in the Kerviel case.
“The real story of the Kerviel case is the failure of risk management at Societe Generale,” Veron said. “And more generally, failures of risk management at large banks are very much at the core of the crisis and its propagation across the world.”
Those ill-managed risks still make the European banking sector fragile today as it struggles with the consequences of a plummeting euro, he said.
“Banks, and their supervisors, have a big responsibility [for the crisis] in having let their risk exposure grow to an extent that many of them were apparently incapable of managing competently,” Veron said.
Lauter is a special correspondent.