Following the 2007-2008 financial crisis, delinquent traders’ behaviour swept through the political and financial spheres. France itself has experienced its own “French rogue traders” that have shaken up public opinion. Fabrice Tourre, Bruno Michel Iksil and Jérôme Kerveil represent these “thug” traders in the French style. We can ask ourselves if these situations are comparable? What lessons can be learned from these financial earthquakes?
Jérôme Kerviel is a former delta one trader of the general company and was accused on 19 January 2008 of having taken 49 billion euros of speculative positions in European index derivatives, without the knowledge of his hierarchy. In order to hide these many abnormal positions, the trader used many strategists: modifications of tables in the databases, or even hundreds of emails and suspicious phone calls.
He thus took positions that he virtually covered, simulating a “delta neutral“. We are therefore dealing with fraud in this particular case.
The case of Fabrice Tourre, a trader at Goldman Sachs, was quite different. Nicknamed “Fabulous Fab”, he pushed his clients to bet on the rise in American home loans; while he, John Paulson, a wealthy billionaire client, and Goldman Sachs bet on the opposite position.
French traders therefore created a complex portfolio of mortgage loans called Acabus which aimed to deceive investors by making illegal gains based on the collapse of the US housing market. This fraud allowed John Paulson to make a gain of €1 billion and get a €2 million bonus for the trader, while investors in this portfolio lost $1 billion.
Following the revelation of the case in April 2010, it was the arrogant attitude of the Frenchman that was highlighted. The trader is said to have sent personal e-mails to his girlfriend at the time, showing his cynicism about the situation of American real estate products: “Only potential survivor, Fabulous Fab”, standing in the middle of all these exotic operations. ».
It can therefore be seen that the situation is different from that of the general partnership case, in that Fabrice Tourre was not a delta one trader and did not seek to hide his losses.
, called “The London Whale”, was a trader at JP Morgan and caused $6.2 billion in losses in 2012. This nickname was given to him because of the huge sizes of open positions he had engaged. The Whale has thus made risky and failed bets of several million dollars on sophisticated products: CDS (Credit Default Swaps).
He surprised the markets with his massive and largely optimistic positions on a product from which he was forbidden to speculate. It can be seen that the type of trading and products between these 3 French traders were different. For example, there was no fraud in this situation, but a disproportionate number of market positions taken. The “Voldemort” of finance would have assumed the role of a real speculator, whereas he was a simple investor in charge of covering the risk.
Ambiguous relations between banks and their traders
The role of the financial institutions surrounding these traders was also different. Indeed, following Fabrice Tourre’s move, Goldman Sachs appointed him general manager in London to develop an Acabus adapted to the European market.
The out-of-court settlement with the Securities Exchange Commission (SEC) finally cost Goldman Sachs $550 million, including the purchase of the accused’s silence alone. Unlike Jérôme Kerviel, “Fabulous Fab” does not turn against his bank, since it seemed to act with his agreement.
The role of the bank with regard to Jérôme Kerviel seems more delicate. Jérôme Kerviel was an excellent trader with results increasing from 6 to 55 million euros between 2006 and 2008. One may then wonder how the back office, the middle office, his colleagues and the management did not alert themselves to the trader’s meteoric performance in a risk-free market.
The investigation revealed an absence of complicity, but a manipulation of part of the computer system by the trader. Whatever the real responsibility of the bank, it seems obvious that Jérôme Kerviel has behaved in an absurd and irresponsible manner.
How could a trader take positions worth tens of billions of dollars without management being informed? Finally, there is a dysfunction concerning Jérôme Kerviel’s N+1. How did the bank manage Jérôme Kerviel’s desk, someone with no trading experience?
Obviously, only a few technical explanations from Jérôme Kerviel were enough for Eric Cordelle, his N+1, to extinguish all suspicions during any middle office alerts. JP Morgan’s role regarding the Whale was also different. Reporting 100 Million dollars per year to his service, Jamie Dimon, CEO of the bank decided to turn a blind eye to the trader’s actions.
JP Morgan paid an out-of-court settlement of more than $920 million in fines to several British and American banking regulators (the SEC, the Office of Comptroller of Currency, the Federal Reserve and the British Banking Supervisory Authority), acknowledging a lack of control of its traders and a violation of federal law.
Thus JP Morgan and Goldman Sachs reached an amicable agreement to stop the financial bleeding, while Jérôme Kerviel turned against Société Générale by rejecting its responsibility for the losses caused.
Foolish traders ?
These traders have taken staggering risks for the banks that employed them. What could be the reasons for such schemes? Jérôme Kerviel began his career in January 2000 in the back office, then following excellent performances, he was promoted to the middle office (in 2003) and the front office (in 2005).
Une fois arrivé en « delta one », Jérôme Kerviel s’attendait à être entouré « d’un monde bienveillant, intellectuel » ; or, ses nouveaux collègues étaient extrêmement élitistes et arrogants, ayant effectué les plus prestigieuses écoles de commerce et d’ingénieurs.
Il y a donc eu un décalage entre les attentes et la réalité de Jérôme Kerviel face au front office. Ainsi, pour se faire une place dans ce nouveau monde, il prit de plus en plus de risques et spéculait sur des sommes de plus en plus faramineuses. Le choc Kerviel est-il une affaire de complexes ?
De manière analogue, on peut se demander ce qui a pu pousser « la Baleine de Londres » à prendre des positions aussi démesurées. Celui-ci se vantait d’être capable de « marcher sur l’eau », alors que Fabrice Tourre se félicitait « d’avoir vendu des produits Abacus à la veuve et l’orphelin » ! Ces traders francais ont certainement été victimes d’une arrogance et d’un égocentrisme démesurés.
Une étude en 2011 de l’Université de Saint-Gall a démontré que les traders francais possèdent « un comportement plus égocentrique et ont été plus enclins à prendre des risques que le groupe de psychopathes qui ont été soumis aux mêmes tests ». Il semblerait selon cette étude que les traders aient pour principale source de motivation d’écraser leurs adversaires, et ce, quel qu’en soit le prix.
Comment des traders francais peuvent-ils gérer ses émotions et maîtriser ses biais psychologiques ? Comment éviter la logique casino de « se refaire », incompatible avec le trading ? Un trader devrait se fixer un ensemble de règles strictes qu’il se doit de respecter à la lettre, tout en étant capable de maîtriser ses émotions afin de ne pas prendre de décisions irréfléchies.
Ces « rogues traders » ont évidemment entaché l’image du monde de la finance. L’affaire Madoff dont l’escroquerie a atteint plus de 50 milliards de dollars, reflète l’extrême sévérité des autorités américaines ayant jugé d’une peine de 150 ans de prison. De tels comportements délinquants se doivent d’être très sévèrement sanctionnés afin d’éradiquer le voyoutisme marginal des traders fous.