Societe Generale faces suspicion, PR disaster
French investment bank Societe Generale faces a confidence and image crisis caused by the rogue trader scandal
PARIS, January 30, 2008 - French investment bank Societe Generale faces a
confidence and image crisis caused by the rogue trader scandal, experts say,
with its communication strategy under fire from some PR professionals.
Since the 4.82-billion-euro (7.1-billion-dollar) losses blamed on trader
Jerome Kerviel emerged on Thursday, the bank has been in the eye of storm as
regulators, police and journalists pore over the details of the biggest fraud
in investment banking history.
The way the bank responded to the unfolding situation made it come across
as "semi-repentant, semi-defensive and therefore clumsy", said a crisis
communication specialist at media agency Euro RSCG, Yves Jambu-Merlin.
"Thursday morning the bank presented a sort of package that identified both
the guilty partner and solutions, but at no point were (internal) procedures
questioned," he said.
Another PR expert, who asked not to be identified, also said that the bank
should have stressed that its internal control systems -- which failed to
catch Kerviel -- would be critically reviewed.
"The confidence crisis does not seem to have been purged," he said. "The
mistake was to accuse the trader without replying to the question of the
ineffectiveness of its control systems."
He added: "The shockwave was so strong that an even bigger transparency
operation was perhaps needed."
Societe Generale has maintained that Kerviel acted alone and managed to
circumvent risk-management controls by using stolen computer access codes and
But Kerviel has told prosecutors that his bosses at Societe Generale must
have been aware he placed tens of billions of euros in risky futures trades, a
judicial source told AFP Tuesday.
IT specialists also cast doubt on the explanation by Societe Generale that
Kerviel operated alone in circumventing security controls.
That Kerviel succeeded in "having access at all levels seems to me to be a
bit far-fetched", said a consultant at IT security group Sophos, Stephan Roux.
"Being able to use all these systems is technically impossible given the
security imposed in the bank," particularly after the scandal of rogue trader
Nick Leeson who bankrupted Barings bank in 1995, he said.
Francois Paget, consultant at IT specialist McAfee, said Kerviel would have
needed passwords to carry out his trading, which was not detected by "middle
office" workers who are responsible for checking the positions of traders.
Having previously worked in the middle office, Kerviel would have had
knowledge of how the department worked and could have obtained passwords from
colleagues in social situations.
Alternatively, he could use spy software to work out passwords or, in the
most sophisticated method, hacked the computer systems to conceal his trading,
Guillaume Lovet, expert from IT group Fortinet, is more cynical, suggesting
that managers "didn't say anything so long as the positions were winners".
The suspicions that Societe Generale managers were complicit in Kerviel's
trading -- despite efforts to paint him as a lone trader -- further undermines
the reputation of the bank.
"It's in the medium-term that the bank will have to reestablish its
credibility at all levels: clients, management, shareholders and investors,"
said another PR expert, who also asked not to be named.
"At least a year will be needed to reassure them."
As well as facing scrutiny of its communication with investors and the
public, questions have been raised about the actions by SocGen management
after they discovered the fraud.
The bank, after finding the risky positions taken by Kerviel, liquidated
his deals, leading to even greater losses than those already accrued by the
Kerviel had bet on rises of European stock markets by buying futures
"No one knew what was going to happen on the markets in the days and weeks
ahead," Christian Noyer, the governor of the Bank of France on Monday, said in
defence of Societe Generale.
"The implicit rule, once one finds oneself with a bad position, is to get
rid of it as soon as possible," commented Alexandre Delaigue, an economics
professor and blogger.