January 28, 2008
Status anxiety and the rogue trader
One further thought on le rogue trader, Jerome Kerviel of Societe Generale (further apologies for the lack of accents).
As I wrote before, there are striking similarities between him and Nick Leeson, the Barings rogue trader. The biggest relates to his motivation.
Both Leeson and Kerviel were lowly figures within their banks who were not supposed to be taking risks with their trading but seem to have started doing so in an effort to burnish their reputations - to make themselves into stars inside their banks.
This piece in the Wall Street Journal this morning rings lots of bells from the Barings case. Like Kerviel, Leeson was supposed to be carrying out routine, low-profile arbitrage trading but instead drifted into doing something different.
Kerviel appears to have been even more deluded than Leeson, who was actively encouraged by his bank to expand his activities because he appeared to be making a lot of money. Kerviel now claims to have been "tolerated" by SocGen; we shall see how much truth there is in that.
Outsiders often have a lot of difficulty understanding why a trader takes extreme risks and engages in fraud unless it is to make money. But I think they miss the point: status anxiety is an equally plausible motive.
Trading floors are not much different from school playgrounds. They are highly competitive places and people can sometimes do crazy things to impress others.
> MOTIVE–’status (anxiety)’ or ‘personal gain’?
How about one driving the other, Mr Gapper?
Many of us who work in the stock market, employed by the giants, earn bonuses according to the size of our trades and the resulting profits–scale buys both bonuses and name-recognition in the sector, which in turn earn us authorisation to trade in a much larger scale.
What we ourselves, as well as those outside, need to quit is this mentality:
Posted by: J Michael, private banker, 39 | January 30th, 2008 at 5:14 am | Report this comment> “I deserve credit when everything goes well.
> “But when things go wrong, I am not responsible
> –I am but a sacrificial lamb, and
> there are people elsewhere laughing their way to the bank.”
> Both Leeson and Kerviel were lowly figures within their banks
> who were not supposed to be taking risks with their trading
Not exactly true, Mr Gapper, whether at SocGen, Barings or Sumitomo.
In the old days, young bankers learned their trade at the feet of, and earned trust from, senior officers who themselves used to be young bankers–the former learning and the latter teaching both the procedural/technical and the intangible/instinctive aspects of the trade.
Messrs Leeson, Hamanaka and Kerviel were stars with much greater autonomy than their actual abilities, learning and experience deserved … working under senior officers who had even less knowledge of and experience in the markets which brought everyone profits.
Is it a surprise then that
Posted by: J Michael, private banker, 39 | January 30th, 2008 at 5:26 am | Report this comment1 authority is exceeded
2 trust is betrayed
3 disaster results
4 the powers-that-be fail to notice until it is too late?
UBS has just announced the first annual loss in its history - 4,4 Mrd in 2007 (and no dividend?). UBS-Boss Marcel Ospel who is still head of the board at UBS will not survive, acc. to sources in the Swiss media…..”Bye-Bye, Monsieur Ospel” is the editorial title in the French-Swiss weekly “L’Hebdo” and the powerful “Neue Zürcher Zeitung” (Sunday edition)
already had an article about who will take over from Ospel..
Ospel is in for a very uncomfortable time in February, at the Basel Carnival: in every “Beiz” (pub) in that city there will as usual be small
groups, in carnival dress, up on stage reciting and singing short poems commenting on the major events of the past year, and pouring criticism, sarcasm and scorn on politicians, managers, etc. This year Ospel (a Basler himself) will probably be the main target and it will all be on Swiss German TV as usual… and as the Germans say : “Schadenfreude ist die reinste Freude” (”Schadenfreude is the purest form of pleasure”)
As Ospel’s successor, the name of Philipp Hildebrand (44 y.o.) is increasingly being mentioned. He is Vice-Pres. of the Swiss National Bank, and his appointment as UBS-boss would be a much-needed very STRONG signal from the Swiss government which would surely boost confidence. Swiss private banks in Geneva are profiting from the fiasco at UBS, one reason being that partners at these banks put their own fortunes on the line (personal liability).
Meanwhile SG’s boss Boutin took a full page in “Les Echos” last week for a mea culpa and to offer his resignation.
Posted by: FH | January 30th, 2008 at 8:28 am | Report this comment