Wednesday, May 28, 2008

How to Lose $7.2 Billion

The French Bank, Societe General, lost about $7.2 billion on trading activities--all due to the activities of ONE of their employees. The report has been issued, and there are five lessons extracted by ComputerWorld.

Supervision was lacking. Despite several internal alerts that should have triggered a closer look at his activities, Kerviel remained largely unsupervised...

A new desk manager assigned to Kerviel in April 2007 was ineffective and weak, and did not have enough support from his superiors...The manager did not carry out an analysis of the earnings generated by his traders — a task that was supposed to be one of his primary responsibilities

Several alerts by the front office got little attention and less response...despite the suspiciously high value amount (59% of his group's earnings) and growth in Kerviel's declared earnings in 2007, no investigation or analysis was ever done.

Kerviel's manager had an overly tolerant attitude toward intraday trading activities. Such trading by Kerviel was "unjustified" given his assignment and lack of seniority as a trader, the report noted

The operations environment was critically chaotic. A "chronically" understaffed middle-office operations group, combined with fast growth and a rapid multiplication in the number of products, contributed to a chaotic operations environment,...

Any one of these is "textbook." Altogether, they add up, no?

1 comment:

asianbadger said...

Sounds exactly like Nick Leeson, the guy who buried Baring Brothers in Singapore.

Those who don't know their history, etc. etc.