When Jerome Kerviel was charged with losing 5 billion Euros at SocGen, I wrote about his case in The Sunday Times of London. My conclusion was that there was no way he could have acted without some level of management consent, even if it were just tacit.
My suspicion is that in these cases, a huge loss is preceded by a huge gain. The gain is quietly accepted, but the loss produces a panic and all the blame is foisted on one individual, often at a very low level in the organization. Kerviel at SocGen, Fabrice Tourre at Goldman Sachs and now Kweku Adoboli at UBS.
Carsten Kengeter, the head of UBS’ investment bank, has spent his professional life in derivatives. Earnings at the bank have been poor for some time now. Many jobs were on the line. My guess is that in an effort to boost them, short-cuts were taken which led to excessively risky trading.
It worked well for a while, but in the kind of volatile markets we have seen in recent months, there was a sudden drop. A few hundred million can be made back. Once you get to $2 billion, you have to call in the authorities, before anyone finds out what’s going on.
Kerviel said something along these lines in his own defence, but wasn’t believed. Adoboli may be taking a similar fall.