Banks - Who Trusts Them?

Given the recent scandals involving SocGen and Credit Suisse, and the massive write downs being posted by banks as a result of their reckless gamble in the US sub prime market, how can anyone (borrowers, savers or investors) seriously trust them anymore?

Read More

Ducking The Question

Philippe Bordenave, the chief financial officer of French bank BNP Paribas, ducked questions about the possibility that BNP may bid for beleaguered Societe Generale yesterday.

Quote:

"We have had no time. When they published their announcement our first priority was to avoid the risk of being tarred by the same brush so we decided to immediately issue a statement and to publish very rapidly our results.

Since then, it was last Thursday, my team and I have worked around the clock to get the figures that we are publishing today. During that very short timeframe I have not had much time to elaborate much further on SocGen."

There are legal procedures under way which have attracted a huge amount of media attention so this is another reason why I don't want to comment on SocGen."

Whatever he says publicly, you can rest assured that privately BNP are doing their best to put together a buyout plan.

Aside from the fact that SocGen is now fatally holed below the water line, Gallic pride would never allow such a "national asset" to be sold to an Anglo Saxon bank.

If BNP do not get their offer in soon, and complete on it, SocGen will fall prey to the Anglo Saxons.

Read More

The Euro5BN Man Hits Back

Jerome Kerviel, known as the Euro5BN Man, who is alleged to be behind the Euro5BN loss at Societe Generale has claimed that many of his colleagues were also guilty of fraud.

He admitted to prosecutors that he breached legislation, but said that he was not the only worker at the bank to flout the law.

His lawyers claim that he had "committed no dishonest act", and had been made a scapegoat by the bank.

Co-workers, including security checkers and managers, have been implicated in the futures trader's dealings.

Prosecutor Jean-Claude Marin said:

"There were other traders who had acted in a similar way by exceeding their trading limits."

Many are sceptical of SocGen's version fo events, and their haste to blame one person.

Matt McKeith, head of equity dealing at First State Investments in Hong Kong, said:

"I think most people are just astonished that someone could get away with that kind of trade for so long without being noticed.

I'd always be slightly suspicious of the company line in these circumstances."

It transpires that SocGen was warned as early as November by Eurex, the derivatives exchange, about the positions being taken by Kerviel. However, they chose to do nothing about it after Kerviel produced a fake document to demonstrate that his risk had been covered by hedging.

Further problems are now coming out of the woodwork for SocGen. It is now facing legal action from shareholders claiming that the bank is involved in insider dealing. Seemingly a non-executive director (Robert Day) sold off nearly Euro100M worth of SocGen shares, eight days before the discovery of "irregular trades".

SocGen's version of events are now seriously in doubt, as is their competence and credibility.

Banks cannot afford to lose confidence or credibility.

Read More

SocGen Emulates Northern Wreck

In the fallout from last week's alleged fraud at Societe Generale, shares in the bank continued to underperform the market falling 3.7% today.

Prompting French Economy Minister, Christine Lagarde, to say that there was no need for Societe Generale to merge with another bank.

However, SocGen's problems have spurred longstanding market speculation that it could be taken over by BNP Paribas. There is also speculation that SocGen might be vulnerable to a break-up bid.

Northern Wreck, SocGen...who's next?

Read More

French Lessons

The recent SocGen scandal whereby Jerome Kerviel has been fingered by directors of Societe Generale, one of France's most banking prestigious institutions, as being solely responsibly for losing Euros5BN has provided a little "light relief" for other banks and investors caught up in the turmoil in the world's financial markets.

However, the matter does raise some rather intriguing questions about how Soc Gen has handled itself during this crisis.

Firstly, and most obviously, how was a relatively junior trader able to get away with such large scale deception over a long period of time?

From January 7th Kerviel had exposed SocGen to the tune of Euro50BN.

How is it that no one noticed this until, allegedly, Friday the 18th?

Reports now indicate that SocGen had seen warning signs much earlier. A classic warning sign of fraud, is an individual who never takes a holiday. Kerviel had not taken a vacation for over 8 months.

Where was the bank's internal audit department?

Why didn't SocGen act on these warning signs?

How is that one lowly trader acting on his own could evade all of SocGen's internal controls, designed top prevent frauds such as this?

SocGen claim that he was working alone.

Yet is this plausible?

Who else helped him?

Another intriguing factor is the timing of the SocGen unwinding of its positions. They unwound their positions on Monday 21st January, the very day that world markets began another freefall, and the day that the Fed made an emergency rate cut of 0.75%.

It seems that Kerviel and SocGen added to the woes of the financial markets, and may have been responsible for pushing the Fed into an emergency rate cut.

Aside from losing Euros5BN, as a result of this fraud, on the same day that SocGen announced this loss (Wednesday 20th January) they also announced losses on sub prime deals of around Euros1.5BN. Note: SocGen are taking the Euro5BN loss to their 2007 results.

How very odd that they combined the announcements!

Was there really a fraud there?

Is it possible that Jerome Kerviel is being made the scape goat for some really lousy legitimate trades made by SocGen?

The timing of the announcement is also raising a number of questions, not least why did they not announce this on the day/weekend that they discovered the fraud?

Indeed, President Sarkozy was kept in the dark for three days over this fraud. He was not told until Wednesday. Suffice to say he is not best pleased, and is asking the very same question.

Why keep quiet for so long over this matter?

The accounting treatment of the losses, taken to the 2007 results, also does not stand up to scrutiny. Why were they not taken to the 2008 results, the year in which the losses were made?

Clearly we have much to learn from the French about how to treat such issues!

It is clear that a lot more is going to come out in the next few days, those in SocGen who think that the worst is over should think again.

Others are going to be joining Kerviel, as he "helps police with their enquiries".

Daniel Bouton, SocGen's chief executive, and Christian Noyer, the governor of the central bank, take note.

Read More