This saga is as clear as mud at the moment.

Details emerged Monday that Eurex, Europe's derivatives exchange, flagged up early warnings to Societe Generale about positions taken by so-called 'rogue' trader Jerome Kerviel.

Eurex is said to have questioned the bank about Kerviel's trades in November, but the trader is believed to have been able to allay fears when confronted. SocGen has now admitted that it also missed a few internal warnings. Another interesting claim is that made by Jean-Claude Marin, from the Paris Public Prosecutor's Office, who said that Kerviel was making non-authorized trades as early as 2005.

In the meantime, many market professionals say that Kerviel was undoubtedly the mysterious 'Mr DAX', who, during the market panic in early January, was busy buying up European stock futures, particularly DAX futures, like they were going out of fashion. Indeed, our very own Highly Place Professional reports on rumours that SocGen was happy with Kerviel at that time as, although he was taking extreme risks, his trading book was actually showing a $1.4bn profit (whether this was a real or fictitious profit is currently unknown).

So, was Kerviel made the fall-guy, after all, when the whole pack of cards came down ? Well, the trader was released on bail Monday evening, after Paris-based investigating judges threw out the fraud charge made against him, although he is being fingered for breach of trust, computer abuse and falsification of bank records. And there appears to be some real doubts now about whether Kerviel did act alone. Indeed, there is some suggestion that the trader has been implicating others in the scandal, or at least the alleged cover-up.

Also not helping the SocGen cause is the fact that Robert Day, an executive director at the bank, and entities connected with him, sold around $145m of SocGen shares on January 10th, just a few days before Kerviel's trading losses were publicly outed. Although the bank has said that Day was completely unaware of the Kerviel situation when the shares were sold, nevertheless this is yet more fodder for the conspiracy theorists.

The heat, then, is back on SoGen, and executives there must be in a sweat. French President Nicolas Sarkozy has said that the execs will need to shoulder their share of the blame for the affair, and talked ominously of 'consequences' for them. As the bank struggles to overcome the fallout from this debacle, some analysts still feel that SocGen faces more subprime lending-related write-downs, and fears are growing that this scandal may seriously damage the prospects for its core equity derivative business for years to come. Takeover talk, too, is back in the air, with Citi coming out Monday and suggesting that HSBC 'would be among the most convincing bidders for SG'.

What a mess.

READER COMMENTS:

1. If Kerviel's team was supposed to be hedging transactions and only
arbitraging small outcomes, then a $1.4bn profit should have thrown up the
warning flags, as this would have been a huge position and in itself would have
required monstrous uncovered positions.  Furthermore, as with all these trades,
where there is a winner, there is also a loser - so SG must also be wondering what happened on the other side of the trade.

This has a long way to go, but is very interesting'.

2. 'Nicolas Sarkozy would dearly love to see some of the SG execs shouldering their share of blame - he'd love to see some of them disappearing from the financial services industry in France altogether. Why ? They all went to ENA (École Nationale d'Administration) - the 'finishing school' of French politics and finance. Sarko is the first French political leader who hasn't been to ENA (I don't think many in his government went there either). In fact, that was probably the reason why there were 'communication problems' between Banque de France, Autorité des Marchés Financiers and SG on the one side, and government on the other. I (and others) have the view that getting rid of existing senior execs at SG will break up the cozy world occupied by ENA alumni..'.

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