Jérôme Kerviel, the equity derivatives trader blamed for a €4.9bn fraud at French Bank Société Générale, faced a second day of questioning on Sunday by police, who said he was cooperating with their inquiry.
French police removed computer files and documents from the offices of SocGen and Mr Kerviel’s apartment on Friday as the investigation got underway.
The rogue trader scandal that is convulsing SocGen prompted demands from Europe’s top central banker on Friday for a major strengthening of banking controls. The call from Jean-Claude Trichet, European Central Bank president and former governor of the Banque de France, came as SocGen came under mounting criticism.
Concerns targeted both its failure to prevent the biggest ever loss caused by a rogue trader and over whether the way it unwound its positions inflated the €4.9bn ($7.2bn) loss by selling into a falling market.
On Sunday the french bank issued a statement that gave a chronology of events since January 18, in which it explains the arbitrage activities, the method behind the fraud, the conditions in which it was uncovered and the unwinding of the fraudulent position.
Jean-Pierre Mustier, head of corporate and investment banking at SocGen, gave more details of the methods Mr Kerviel used to evade the banks’ controls.
Mr Kerviel, a 31-year-old trader, bought futures in European share indices – effectively bets on the future direction of the stock market – in the UK, Germany and the Eurostoxx 50 worth an estimated €50bn, more than SocGen’s market value.
“Every two or three days, he was changing his position. He would input a transaction that would trigger a control in three days and before that happened he would replace it with a different one,” said Mr Mustier.
He said the rogue trader was managing hundreds of thousands of concealed trades and an equal number of falsified hedges to give the appearance that any loss was offset.
A rival investment banking executive said Mr Kerviel, did not lose €4.9bn by trading futures on European share indices, as SocGen claims, but only €1.5bn – the deficit his trading had accumulated by the time he was caught.
“The board of SocGen lost the other €3.4bn,” said the rival banker. But the bank defended its actions, saying it could not risk keeping the positions open.
Meanwhile, accounting experts on Friday questioned whether the bank was right to take the loss in its 2007 accounts, as the positions had only been opened in 2008. Colette Neuville, a leading voice of French minority shareholder interests, demanded an explanation from Daniel Bouton, SocGen’s chairman and chief executive. The bank insists it has complied with international accounting rules.
François Fillon, French premier, voiced irritation that he was not told of SocGen’s problems until Wednesday.
At the World Economic Forum in Davos, Mr Trichet said: “It is an absolute necessity to significantly strengthen internal controls of risks in all institutions.”