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    Societe Generale

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    Makuna Natsvlishvili
    Société Générale is a French multinational investment bank and financial services company founded in 1864. It has operations in retail banking, investment management, and corporate and investment banking. In 2008, trader Jérôme Kerviel committed a €4.9 billion fraud through the concealment of unauthorized futures positions. Internal controls at Société Générale failed to detect Kerviel's fraudulent activity in time. An investigation later found gaps and weaknesses in the bank's risk management practices and oversight of traders' activities.

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    Societe Generale

    Uploaded by

    Makuna Natsvlishvili
    206 views42 pages
    Société Générale is a French multinational investment bank and financial services company founded in 1864. It has operations in retail banking, investment management, and corporate and investment banking. In 2008, trader Jérôme Kerviel committed a €4.9 billion fraud through the concealment of unauthorized futures positions. Internal controls at Société Générale failed to detect Kerviel's fraudulent activity in time. An investigation later found gaps and weaknesses in the bank's risk management practices and oversight of traders' activities.

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    Société Générale is a French multinational investment bank and financial services company founded in 1864. It has operations in retail banking, investment management, and corporate and investment banking. In 2008, trader Jérôme Kerviel committed a €4.9 billion fraud through the concealment of unauthorized futures positions. Internal controls at Société Générale failed to detect Kerviel's fraudulent activity in time. An investigation later found gaps and weaknesses in the bank's risk management practices and oversight of traders' activities.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    206 views42 pages

    Societe Generale

    Uploaded by

    Makuna Natsvlishvili
    Société Générale is a French multinational investment bank and financial services company founded in 1864. It has operations in retail banking, investment management, and corporate and investment banking. In 2008, trader Jérôme Kerviel committed a €4.9 billion fraud through the concealment of unauthorized futures positions. Internal controls at Société Générale failed to detect Kerviel's fraudulent activity in time. An investigation later found gaps and weaknesses in the bank's risk management practices and oversight of traders' activities.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 42

    SOCIÉTÉ

    GÉNÉRALE
    FOUNDED IN 1864
    • 1870 – 15 branch in Paris 32 outside it in
    France
    • 1871 – became quoted on the French
    stock exchange
    • 1895- 14k ShareHolders
    • 1945 – was nationalized
    1920 became the leader bank of France
    • On July 29, 1987 the government
    sold its interest in Societe
    Generale to the Public

    • The bank was privatized


    DANIEL BOUTON
    CEO
    1991-2008
    In 1997 Societe Generale purchased
    Crédit du Nord and with that acquired
    a network of regional banks:

    Banque Courtois Banque Tarneaud


    Banque Kolb Société Marseillaise de
    Banque Laydernier Crédit
    Banque Nuger Crédit du Nord 
    Banque Rhône-Alpes Gilbert Dupont
    The transaction was valued at 2.2 billion francs (€340 million). 
    2008 Recessions:

    Global Financial Crisis Kerviel Fraud

    2009 Recession:
    Goldaş Case
    HISTORY OF THE
    STOCK MARKET
    The birth of stock exchanges
    • Rome
    • Early stock commodity markets
    • The world’s first stock markets (without
    stocks)
    • East-India companies
    • Governor and Company of Merchants of
    London trading with the East Indies
    • Amsterdam Stock Exchange
    Coffee Stock
    • Stocks were Traded in Coffee Shops
    • “where businessmen could trade stocks
    without having to order a coffee or yell
    across a crowded café”
    Wall Street
    • Wall Street Is associated to Stock Exchange
    • The market on Wall Street opened May 17,
    1792 on the corner of Wall Street and
    Broadway
    Market Crashes
    • Stock Market Crash of 1973-1974
    • Black Monday of 1987
    • Dot-com Bubble of 2000
    • Stock Market Crash of 2008
    Largest Markets
    • NYSE
    • NASDAQ
    • Tokyo Stock Exchange
    • London Stock Exchange
    Group
    • Euronext
    • Hong Kong Stock Exchange
    Structure
    Nana Patsuria
    Company divisions

    1. Retail Banking and Financial Service

    2. Global Investment Management and Services

    3. Corporate and Investment Banking


    1. Retail Banking and Financial Service
    Typical mass-market banking in which individual customers use local branches of larger
    commercial banks:
    • 37 country

    • 2,795 branch

    • 40,000 employees

    • 8.8 million individual customer

    • 730,000 Business (client)


    2. Global Investment Management and
    Services
    5 complementary business lines:
    1. Asset management
    2. Private banking
    3. Securities service
    4. Newedge (multi asset brokerage)
    5. Boursorama (online banking)

    In 2008 11,000 employee and 336 billion euro in assets under management
    3. Corporate and Investment Banking
    Banking 3 departments:

    1. Global Equities and Derivatives Solution – the most important

    2. Fixed income, Currency and Commodities

    3. Capital raising and Financing


    3.1 Global Equities and Derivatives Solution
    Derivative: Purpose:
    • Option • Hedge
    • Forward • Speculation
    • Swap
    Arbitrage:
    • Futures • Index arbitrage

    Derivatives and trading accounted 20% of


    total profit in 2007
    59 profit centers and all profitable, more
    than 10 % of revenue- in 2006
    IT and human capital
    • Top Students from top math and
    engineering Schools

    • Soldier-monk

    • Risky investment

    • It invetements
    Delta one
    • Arbitrage division:
    • Statistics

    • Probabilities

    • Equity swaps

    • 3-24 employees
    JÉRÔME KERVIEL
    Before Delta One

    ■ Received Bachelor’s degree in finance from The University of Nantes


    ■ Graduated from University Lumiere with a Master of finance
    ■ Joined Société Générale in 2000
    ■ 13-month contract for 32000Euros
    ■ 2002- became trading assistant
    The Delta One Listed Products Desk

    ■ 2005- Kerviel Joined DLP


    ■ Delta one- subdivision within the arbitrage division
    ■ Martial Rouyere- Head of Delta One
    ■ Delta one listed products- Eric Crodelle(head) and 7
    traders(including Kerviel)
    Activities

    ■ Kerviel Specialized in Turbo Warrants


    ■ Turbo Warrants- less sensitive to volatility than regular options
    Kerviel’s build-up of large directional
    positions
    ■ 2005- Built a short-selling position of 10 million Euros in
    Allianz
    ■ 2007- Built a short-selling position on DAX futures (30
    Billion)
    ■ 2008- Built a long position on index futures (49 Billion)
    “Cash Machine”

    ■ 2007- reported earnings 25million- only 3 million was generated by turbo


    warrants
    ■ Kerviel’s earnings- 59% of DLP Trading desk’s total earnings
    ■ Colleagues called him “cash machine” or “star”
    ■ Annual salary -48 000 Euros
    ■ Bonus – 60 000 Euros
    KERVIEL’S FRAUD
    Trading
    • Short Position • Long Position
    Derivatives

    • Options
    • Put
    • Call
    • Short/Long Put/Call
    Cash Machine
    • Initial job: Arbitrage on turbo warrants

    • Reported Earnings 25 Million VS Actual


    Earnings 1.5 Billion

    • No Personal Benefit

    • Futures on Indexes
    • London Terrorist Bombing Allianz Stock
    • 9/11 Attack
    Fraudulent Transactions
    • 2005-2006: 135 Million Position From February in Equities

    • 2007: Short Position on Index Futures

    • June EUR 28 Billion – Unwind in August


    • September EUR 30 Billion- Unwind November
    • Position on Equities 370 Million
    • Total Profit 1.5 Billion
    Fraudulent Transactions
    • Subprime Mortgage Crisis
    • January 2008: 49 Billion Long Position on Index Futures
    • Discovered in January
    • Unwound by Bank
    • EUR 6.4 Billion Loss
    Concealment Techniques

    • Entry and Cancellation of Fictitious


    Transactions: 947 in Total

    • Pairs of Fictitious Reverse


    Transactions: 115 in Total

    • Correcting Entries Through Trading


    Assistants’ Computers
    INTERNAL CONTROLS
    AND ALERTS
    REGARDING KERVIEL’S
    ACTIVITY
    Needs for Controls

    • Number of traders increased


    • Specific knowledge
    • Opportunity for fraud
    Control Tasks of Trading
    Desk Managers
     Net Position
    The value of the position subtracting the initial cost of
    setting up the position
    • Net Position < Allocated Risk Limit
    • €125 million for the DLP Desk

     Databases of Traders’ Activities


    • Fictitious Transactions
    • EY & Deloitte
    Control Tasks of Middle and
    Back Offices

     Monitoring activities were fragmented among


    departments
     Each trader had an assistant, whose role was to help
    with routine tasks
     Two-week vacation
    Inappropriate Personnel
    ■ Eric Cordelle
    • Lack of Experience in Trading
    • Trustful
    • Easy to Cheat
    ■ Jerome Kerviel
    • Experience in Middle Office
    • Knowledge of Internal Controls
    Alerts

    ■ Anomalies in Kerviel’s trading


    ■ Abnormally high levels of cash borrowings
    ■ E-mails from Eurex
    THANKS FOR YOUR
    ATTENTION!

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