The Société Générale Fiasco - Lessons in Risk Management

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Case Details:

Case Code : FINC052
Case Length : 24 Pages
Period : 2005-2008
Pub. Date : 2009
Teaching Note :Not Available
Organization : Société Générale
Industry : Banking & Financial Services
Countries : France

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Excerpts

Background Note

Société Générale was founded in 1864 by a group of industrialists, bankers, businessmen, and heads of railway companies, after an authorization decree was signed by Napoleon III. By 1870, it had around 47 branches in Paris and other provinces in France...

The Execution of the Fraud

Kerviel (born January 11, 1977) joined Société Générale in August 2000 after graduating in finance from Lumière University Lyon 2, France. Initially, he worked in the back and middle offices, where his job involved processing and overseeing transactions made by the traders...

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Events Leading to the Disclosure of Fraud

Kerviel continued to take directional bets on index futures even in January 2008, and this proved to be disastrous. At that time, equity markets globally were going down rapidly and Kerviel took a long position on the three European stock exchange indices. He felt that the markets would rebound by March 2008...

How was the Fraud Concealed?

Kerviel had carried out several buy and sell side transactions which were directional bets. He manipulated the system by creating fake hedging contracts, which he subsequently removed from the system before they were settled and put new contracts in place. (Refer to Table II for the concealment techniques used by Kerviel).

According to Société Générale's general inspection department, the fraud consisted of taking directional bets on equities or futures traded on regulated markets...

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