PARIS (Reuters) - Rogue trader Jerome Kerviel was branded a liar who took “inhuman” risks by a former boss on Wednesday during a trial over trading losses that brought French bank Societe Generale close to collapse.
The bank’s former head of investment banking, Jean-Pierre Mustier, hit back at Kerviel’s claims in court that SocGen tolerated unauthorized trading positions that eventually cost the bank 4.9 billion euros ($6.57 billion) to unwind in 2008.
“You lied to me all along,” an animated Mustier told Kerviel in the cramped courtroom in the Palais de Justice, before telling judges Kerviel took “inhuman” risks that would be termed “criminal” in the United States.
Kerviel, 33, risks five years in jail and a 375,000-euro fine if found guilty of charges of breach of trust, computer abuse and forgery. His trial began on Tuesday amid a media frenzy over one of the most famous faces of the financial crisis in France.
The ex-trader has said his bosses encouraged him to take risks and his lawyer has painted him as a “pawn.” SocGen says he acted alone and denies tacit complicity.
“We encouraged traders to know how to take risks. We did not encourage them to take risks,” said Mustier, who quit SocGen last August amid an insider trading probe that also targeted non-executive director Robert Day.
Lawyers quizzed Mustier over the probe Wednesday, but the ex-banker responded by saying the regulator’s sanctions committee planned to recommend his acquittal.
Earlier on Wednesday, a seemingly tense Kerviel told the court that during his career at SocGen he regularly exceeded his trading limits without sanction.
“To the extent that it was exceeded every time, the limit was porous and never bothered us (traders),” Kerviel said in a faintly audible voice as he stood before the judges.
The 125-million-euro trading limit was a broad one applied to Kerviel and the seven other traders on his desk without any individual breakdown, he added.
SocGen’s representative in court said that even though data on Kerviel’s positions was available to his superiors, it would be “operationally unrealistic” to imagine them knowing exactly where to look in the thousands of daily recorded trades.
The court also heard from witness Jean-Francois Lepetit, former head of the French market regulator, on Wednesday.
After describing how risk controls were supposed to work across the financial sector, Lepetit said: “If you exceed your limits and you do not admit it, you are at fault.”
He added there were “degrees,” saying, “Limits are not a red light.”
Judges grappled with the exact nature of Kerviel’s job.
The prosecution’s view is that he engaged in “arbitrage” and reduced risk by taking inverse covering positions, while Kerviel counters he saw himself as a regular trader with one-way positions.
Kerviel’s trial is being held as Societe Generale struggles to restore investor confidence during a fragile economic recovery and as it faces looming stricter regulation of banks.
SocGen has tightened risk controls since the scandal broke and has tried to rebuild morale at its retail branch network after the damage to its brand image and reputation allowed BNP Paribas to gain the advantage.
The trial threatens to overshadow SocGen’s planned investor event on June 15 that is designed to promote Chief Executive Frederic Oudea’s new strategy.
Kerviel’s trial is seen as an important case of whether financial excess is to be viewed as inherent to the banking system or the result of egregious individuals.
Kerviel quickly rose through the ranks of “middle-office” and assistant roles before becoming a trader for the bank.
He has admitted to building unauthorized trading positions that rocked world markets when Societe Generale revealed the 4.9-billion-euro loss in January 2008, after it had wound-down Kerviel’s trading positions.
While the bank has insisted he acted alone, Kerviel has said his superiors knew what he was doing and tolerated breaches in the bank’s controls system.
Reporting by Lionel Laurent and Thierry Leveque. Editing by Marcel Michelson, Simon Jessop and Robert MacMillan