Rogue Traders a Nightmare Scenario for Finance CEOs

"In a big bank, superiors get moved around a lot, so they don't have that much time to get to know someone," said a major hedge fund manager, who asked that his name and firm not be revealed.

One red flag to watch for: "You do start to worry when you see someone working late hours alone," said the hedge fund manager.

And that is exactly what Societe Generale said Kerviel had done — working late hours, hacking into various computer systems.

Both Societe Generale and Kerviel's legal team agree that Kerviel did not profit from his multibillion-dollar bet on European stock markets. Instead, he simply wanted to be seen as a better trader. He apparently fell under the pressure to succeed in order to receive a greater bonus.

While trading and investment banking jobs come with immense pressure and countless all-nighters at the office, they also usually come with some nice compensation. According to a recent New York Times report, in 2006, first-year associates with a business degree could expect a salary in the range of $200,000 to $270,000. A first-year financial analyst, just out of college, could expect to make $105,000 to $145,000.

Kerviel's salary is said to have been $147,000 — a fortune to some, but a mere pittance when compared with some of the industry's top earners.

For the executives who oversee large stables of traders, emphasizing caution regarding risk is a tricky proposition. While risk is a very important element in banking, knowing when to back away can be equally, if not more, rewarding in the long term.

And for CEOs, one of the keys to managing risk is keeping tabs on a company's financial positions and its traders. The best method for knowing when to back away may be to know exactly when one of your traders has gone too far.

Sonnenfeld points to J.P Morgan CEO Jamie Dimon as a perfect example of a true Wall Street maverick.

Last spring, just a few months before most banks began taking on massive losses stemming from the subprime and credit market defaults, Dimon, unlike his counterparts at other firms, "rolled up his sleeves and announced that he would be spending the summer examining where the firm's positions were," Sonnenfeld said. "And if he didn't understand it, then he was going to get out. And that was a breathtakingly brilliant move. And it showed true leadership."

J.P. Morgan did take a write down of more than $1 billion in fourth quarter from its subprime exposure, but it was a fraction of what rivals Citigroup and Merrill Lynch took.

Indeed, while Citigroup's Chuck Prince and Merrill Lynch's Stan O'Neal lost their jobs over their subprime exposure, Dimon has kept his and has been able to keep the bank in the black for the fourth-quarter and full year.

Perhaps that is why he seemed the most approachable, if not carefree, financial chief at Davos this year.

With reports from the Associated Press

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