THE TELEGRAPH: The President's attempt to reform US banks may have unintended consequences, as billions are wiped off their shares prices and opponents sharpen their knives
Just over two years ago, a junior trader on Société Générale's proprietary trading desk in Paris was celebrating after making his bank a profit of almost £1bn. His success, he reckoned, would justify a bonus of about £200,000 and catapult him up the corporate hierarchy and on to greater riches. And why not? He had taken bold positions on a number of European stock exchange indices and they'd come good.
Within weeks, though, the positions had unravelled. The £1bn profit turned into a £3.7bn loss and nearly broke his bank. The SocGen individual was Jérôme Kerviel, the biggest rogue trader of them all.
As Kerviel went on the run and the bank launched an investigation into how he had evaded its controls, it emerged that the loss-making positions he held totalled £37bn – more than the value of the bank. Such huge exposures were only possible on the proprietary trading desk ("prop desk") – the casino in the bank – where a select group of traders are trusted to gamble with the lender's own money.
When it works, prop trading can be a source of great riches – for both the bank and the banker. Citigroup's prop trading oil unit Phibro made an average profit of $371m (£230m) a year between 2003 and 2008. With performance like that, some might say its British-born boss, Andrew Hall, deserved the $100m he was paid.
President Barack Obama, though, was not among them. When details of Hall's deal emerged last year, the White House described it as "out of whack" given that Citigroup had been rescued by the state. Last week, as he unveiled the biggest potential shake-up of banking since the Great Depression, the President went one step further. He described such payments as "obscene" and illustrative of the "binge of irresponsibility". >>> Philip Aldrick | Saturday, January 23, 2010
