This case describes a dramatic chapter in banking history: the January 2008 trading loss incident at Societe Generale. The incident, which involved trader Jerome Kerviel, resulted in a loss of 4.9 billion euro - the largest in banking history. SocGen says Kerviel acted alone for years taking enormous unauthorized positions in financial derivatives. Kerviel says that his managers at SocGen knew of his activities and supported them. This case presents various points of view, including the personal ambitions of Jerome Kerviel, the performance oriented culture of trading, the varied but ineffective risk controls at SocGen, the management failures, and the extremely bad market conditions of January 2008. The complex interplay of these factors gives the student the opportunity to have a glimpse at the difficulties encountered by modern financial institutions, especially banks, to manage some of their key units such as derivatives trading desks. The case offers a concrete exemplar from which to derive many potential lessons for the risk management in financial institutions. It can be used for an MBA course in Risk Management or Financial Derivatives.
The perfect storm: Societé Generale and Jerome Kerviel
PENA PINA, ALONSO
2010
Abstract
This case describes a dramatic chapter in banking history: the January 2008 trading loss incident at Societe Generale. The incident, which involved trader Jerome Kerviel, resulted in a loss of 4.9 billion euro - the largest in banking history. SocGen says Kerviel acted alone for years taking enormous unauthorized positions in financial derivatives. Kerviel says that his managers at SocGen knew of his activities and supported them. This case presents various points of view, including the personal ambitions of Jerome Kerviel, the performance oriented culture of trading, the varied but ineffective risk controls at SocGen, the management failures, and the extremely bad market conditions of January 2008. The complex interplay of these factors gives the student the opportunity to have a glimpse at the difficulties encountered by modern financial institutions, especially banks, to manage some of their key units such as derivatives trading desks. The case offers a concrete exemplar from which to derive many potential lessons for the risk management in financial institutions. It can be used for an MBA course in Risk Management or Financial Derivatives.
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