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!