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Home News Societe Generale faces suspicion, PR disaster

Societe Generale faces suspicion, PR disaster

Published on 30/01/2008

   PARIS, January 30, 2008 - French investment bank Societe Generale faces aconfidence 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 traderJerome Kerviel emerged on Thursday, the bank has been in the eye of storm asregulators, police and journalists pore over the details of the biggest fraudin investment banking history.   The way the bank responded to the unfolding situation made it come acrossas "semi-repentant, semi-defensive and therefore clumsy", said a crisiscommunication specialist at media agency Euro RSCG, Yves Jambu-Merlin.   "Thursday morning the bank presented a sort of package that identified boththe guilty partner and solutions, but at no point were (internal) proceduresquestioned," he said.   Another PR expert, who asked not to be identified, also said that the bankshould have stressed that its internal control systems -- which failed tocatch Kerviel -- would be critically reviewed.   "The confidence crisis does not seem to have been purged," he said. "Themistake was to accuse the trader without replying to the question of theineffectiveness of its control systems."   He added: "The shockwave was so strong that an even bigger transparencyoperation was perhaps needed."    Societe Generale has maintained that Kerviel acted alone and managed tocircumvent risk-management controls by using stolen computer access codes andfictitious documents.   But Kerviel has told prosecutors that his bosses at Societe Generale musthave been aware he placed tens of billions of euros in risky futures trades, ajudicial source told AFP Tuesday.   IT specialists also cast doubt on the explanation by Societe Generale thatKerviel operated alone in circumventing security controls.   That Kerviel succeeded in "having access at all levels seems to me to be abit far-fetched", said a consultant at IT security group Sophos, Stephan Roux.   "Being able to use all these systems is technically impossible given thesecurity imposed in the bank," particularly after the scandal of rogue traderNick Leeson who bankrupted Barings bank in 1995, he said.   Francois Paget, consultant at IT specialist McAfee, said Kerviel would haveneeded passwords to carry out his trading, which was not detected by "middleoffice" workers who are responsible for checking the positions of traders.   Having previously worked in the middle office, Kerviel would have hadknowledge of how the department worked and could have obtained passwords fromcolleagues in social situations.   Alternatively, he could use spy software to work out passwords or, in themost sophisticated method, hacked the computer systems to conceal his trading,Paget said.   Guillaume Lovet, expert from IT group Fortinet, is more cynical, suggestingthat managers "didn't say anything so long as the positions were winners".    The suspicions that Societe Generale managers were complicit in Kerviel'strading -- despite efforts to paint him as a lone trader -- further underminesthe reputation of the bank.   "It's in the medium-term that the bank will have to reestablish itscredibility 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 thepublic, questions have been raised about the actions by SocGen managementafter they discovered the fraud.   The bank, after finding the risky positions taken by Kerviel, liquidatedhis deals, leading to even greater losses than those already accrued by therogue trader.   Kerviel had bet on rises of European stock markets by buying futurescontracts.   "No one knew what was going to happen on the markets in the days and weeksahead," Christian Noyer, the governor of the Bank of France on Monday, said indefence of Societe Generale.   "The implicit rule, once one finds oneself with a bad position, is to getrid of it as soon as possible," commented Alexandre Delaigue, an economicsprofessor and blogger.