Soc Gen offers 0% on balance transfers up to €50B

Some interesting things concerning the Shock Gen event:

• Margin. As Alea points out, the margin on Shock Gen's positions would have been about 4.9B euro. Didn't they notice they were funding a few billion euros more margin than they thought they were? If they thought the offsetting position was with a client, didn't they call collateral from the client? Or were they in the habit of letting clients have billions of Euros of equity exposure without margin?
  
• Unsurprisingly, shareholders are suing, claiming market manipulation.
  
• Did Shock Gen find Kerviel or did Eurex? The FT raises the issue, then suggests Eurex first raised the alarm in November.
  
• Kerviel did not lose 4.9B. He only lost 1.5B. OK, still chunky, but the other 3.4 came from management's hasty closing of the position in a falling market.
  
• Things not to say any time after Barings went bust: We all lived in fear that something within the exotic products would blow up in our face. It never came to our mind that we might have a problem with Delta One," said a top Société Générale official.
  
• Investigating judges in France have just thrown out the charge of attempted fraud against Kerviel.
  

And finally, I don't usually quote extended passages, but this from the Daily Mash (from whom I borrowed the post title) is amusing enough to be worth reproducing:

FRIENDS of rogue trader Jérôme Kerviel last night blamed his $7 billion losses on unbearable levels of stress brought on by a punishing 30 hour week.

Kerviel was known to start work as early as nine in the morning and still be at his desk at five or even five-thirty, often with just an hour and a half for lunch.

One colleague said: "He was, how you say, une workaholique. I have a family and a mistress so I would leave the office at around 2pm at the latest, if I wasn't on strike.

"But Jerome was tied to that desk. One day I came back to the office at 3pm because I had forgotten my stupid little hat, and there he was, fast asleep on the photocopier.

"At first I assumed he had been having sex with it, but then I remembered he'd been working for almost six hours."

As the losses mounted, Kerviel tried to conceal his bad trades by covering them with an intense red wine sauce, later switching to delicate pastry horns. At one point he managed to dispose of dozens of transactions by hiding them inside vol-au-vent cases and staging a fake reception...

I'll end with a few sea creatures you might find convenient if you have a few thousand equity index futures to conceal.

Soc Gen Shock

Soc Gen has discovered there is less behind those nice sturdy vault doors than they thought. 4.9B Euros less, approximately, according to Bloomberg, thanks to the activities of a rogue trader, Jérôme Kerviel. They are raising 5.5B Euros of fresh capital.

The similarities with Barings border on the eerie. The trades were in equity index futures. They weren't complex, nor did they involve options. Although the trader did not control the middle office, as Leeson did, he did have extensive knowledge of it from prior employment there, and hence managed to evade the firm's controls. See here for the full statement.

Finally in a delicious irony, as FT alphaville points out, Soc Gen is Risk Magazine's equity derivatives house of the year. (Recall that NatWest was high in Risk Magazine's GBP and DEM interest rate derivatives league tables in 1994-996 just before they revealed their interest rate derivatives loss in, err, GBP and DEM.)

It is absolutely extraordinary that this can happen in 2008. To generate a five billion loss on asset backed securities is unfortunate. To do it on equity index futures is incredible. If the fictitious positions were exchange traded futures did they not do basic position reconciliation from the exchange to their systems? What about margin? If they were OTC forwards did they allow the trader to control confirmations from counterparties? What about collateral? The autopsy on this one will be interesting.

Meanwhile on Radio 4 this evening there has just been speculation that the dramatic falls in markets around the world earlier in the week were caused in part by Soc Gen liquidating its positions. If this is true and we got the 75 bps FED rate cut as a result, there is going to be some serious trouble. Surely Soc Gen couldn't have dumped ten of billions of index futures without telling the regulators could they?

Update. The Bank of France knew but neither they nor Soc Gen told the FED according to Bloomberg. That's shocking.

The Guardian is uneqivocal here: 'SocGen's desperate race to clear up the damage and unravel Kerviel's trading positions were at the heart of the stockmarket turmoil on Monday when share prices across Europe crumbled by 7%.' We won't know if that is really true for a while, but for now I'll leave you with a link to a summary of the Market Abuse Directive. Note in particular

Market manipulation comprises three parts. These are: transactions and orders to trade that give false or misleading signals or secure the price of a financial instrument at an artificial level. [...]

Update. There is a nice New York Times article on Soc Gen's unwind, Société Générale’s Sales May Have Incited Market Plunge, with details of the notionals transacted on Monday and Tuesday here. They going to be in serious trouble with the FED if these suspicions turn out to be true.