The discovery that a rogue trader had built up €4.9 billion in losses at French bank Société Générale sparked intense debate among delegates between sessions on the second day of the World Economic Forum in Switzerland. Simon Carswell, Finance Correspondent, in Davos
News that Paris-based trader Jérôme Kerviel (31) had racked up record losses through share transactions raised eyebrows at Davos, as it has coincided with the global banking crisis and the threat of a downturn in the world economy, which have dominated formal discussions at the annual meeting of the World Economic Forum in the Swiss resort.
Bankers expressed "disbelief" at the SocGen losses. The losses are four times greater than those incurred by currency trader Nick Leeson at Barings Bank in 1995.
"It's a CEO's worst nightmare," said a senior banker. "We all pride ourselves on our control environment." At SocGen, there appeared to be "collusion" between the front office, where Kerviel did his trades, and the back office, where the transactions were checked by a third party. "These things happen every few years. It might depend on the risk-taking tolerance within a bank."
The Paris-based bank employee was responsible for trading on the futures market and made a series of loss-making bets based on stocks rising in 2007 and 2008.
The bank said the trader had an "in-depth knowledge" of controls, having previously worked in the office where trades were checked.
Speaking in Davos, French prime minister François Fillon reassured investors that the difficulties at SocGen were isolated from the crisis in the global financial markets.
"It's a serious case, but at the same time it has nothing to do with the situation on the financial markets," he said.
"It is quite surprising that positions of that magnitude would not have been monitored much more carefully in this area of intense focus on risk management," said Mary Schapiro, chief executive of the US regulator, the Financial Industry Regulatory Authority.
"One would hope that every time something like this comes to light, everyone redoubles their efforts at risk controls. There is always a possibility of a rogue trader at a bank, so risk controls have to contemplate that possibility - that is why you have built-in controls."
Richard Fuld, chief executive and chairman of investment bank Lehman Brothers, said: "This is everyone's worst nightmare. But nothing stuns me, nothing really surprises me these days."
Gilles Glicenstein, head of asset management at SocGen's rival BNP Paribas, said: "It shows that we are in a very troubled period for banks and I think that it's in such troubled periods that difficult things happen."
Earlier in the Swiss resort, U2 singer Bono and former US vice-president Al Gore warned government leaders that efforts to fight global poverty and climate change were slipping.
Bono, a campaigner for debt relief for Africa and for efforts to treat and prevent Aids, said promises made by the G8 to provide $50 billion (€34 billion) a year to end poverty had not been met. "The G8 are not making good largely on their commitments."
He said the world's leading nations had promised to take measures to halve extreme poverty and hunger by 2015 under the UN's millennium development goals, but that only half the G8 countries had fulfilled their promises. "If you cannot keep these commitments to the poorest of the poor, who are we? It is an issue of credibility," said the U2 frontman.
Sharing a stage with Bono at Davos to combine their campaigns against poverty and climate change, Mr Gore warned that the climate crisis was "significantly worse" than previously thought.
"This is a planetary emergency. There has never been anything remotely like it in the entire history of human civilisation. We are putting at risk all of human civilisation," he said.
