It seems to be emerging today that
Jerome Kerviel’s job was not nearly as clerical and low-risk as SocGen first made out: his lawyers now claim that his trading was in profit to the tune of €1.5 billion at the end of last year, and that he was set to receive a bonus of €300,000 on his €50,000 base salary.
Recall the FT’s primer on the Delta One business where Kerviel was based:
Imagine an investor wants to earn the return on a ßøßø10m ($19.7m) investment in the FTSE 100 index. For this, the bank would demand a margin – or upfront fee – of, say, ßøßø1m. If the index went up 5 per cent, the client would be paid ßøßø500,000. If it went down 5 per cent, half the investor’s margin would be lost.
It sounds like a relatively simple business. The obligation of the investment bank to the investor moves in perfect correlation with the trade the investor specifies. Hence the name – in financial jargon, any two investments that move in perfect tandem with each other are said to have a delta of one.
Delta One’s profits come from interest on margin, not on prop bets. Certainly a trader as low down on the food chain as Kerviel shouldn’t be making big prop bets, and certainly shouldn’t be generating trading profits of €1.5 billion.
Any remnants of sympathy for SocGen in this affair are fast disappearing.