SocGen trader spent three days unravelling €50bn Kerviel trades

· Operation accounted for 8% of DAX trades at times
· Bank says it is confident that Kerviel acted alone

A single trader, hand-picked by the senior management of Société Générale, unravelled the €50bn (£37bn) trading position amassed by Jérôme Kerviel in just three days last week. At times the desperate operation to try to contain the bank's losses accounted for almost 8% of share trades in Germany's DAX index and more than 3% of the FTSE 100 index of leading shares in the UK.

The fact the position could be unwound by one unidentified trader has helped France's second largest bank feel more confident that Kerviel was acting alone. The bank conceded yesterday it could not be certain but felt it was "extremely unlikely" anyone else was involved.

The bank is putting in new controls and "significant human resources" in place to ensure they are implemented and has hired external fraudbusters. Other banks around Europe and the City are also being ordered to check their internal controls by their regulators, after the news of the €4.9bn fraud broke on Thursday.

The French bank conceded that the size of the trades on Monday, Tuesday and Wednesday last week may have had some impact on the sudden and dramatic falls in Europe's stockmarkets. The scale of the selling in European markets last Monday prompted the US Federal Reserve into a three-quarter-point cut to interest rates in an attempt to stem the panic.

It is now clear that in unravelling the hidden trades conducted by Kerviel, SocGen was forced to conduct as much as four times more trade than it normally would in Europe's stockmarkets. For instance, last Monday, SocGen's covert unwinding operation meant that 8.1% of all trading in the European stockmarket index Eurostoxx, which comprises the 50 biggest stocks in the eurozone, some 7.8% of Germany's Dax and 1.7% of the FTSE 100 was handled by the French bank.

By Tuesday, SocGen was accountable for 3.1% of trades in the FTSE 100, 5.7% of the Dax and 6.8% of the Eurostoxx. By Wednesday, the position in the FTSE 100 had been cleared but the French bank had traded 6.1% of all volume in the Dax and 5.9% of all the business in the Eurostoxx.

More usually, SocGen would be accountable for between 2% and 4% of a day's trading volume. Jean-Pierre Mustier, head of investment banking, said the bank had tried to keep its volume down to 10% of any market to try to "respect the market's integrity". He insisted that any impact on the wider market would have been "limited".

The bank began to suspect that something was wrong last Friday night when a trade on its internal control system raised suspicions about one of Kerviel's counterparts.

A few days earlier, the bank had put additional checks on Kerviel's positions when there had been concerns about exposure to a broker on the other side of one of his trades.

Over the course of the weekend of January 19 and 20 the bank, after grilling Kerviel, realised the scale of the fraud he had perpetrated by "misappropriating" IT codes so that he could cancel some of his trades and falsify documents to make fictional trades appear real.

Kerviel, a junior trader, was not supposed to take bets on markets. His job on the proprietary trading desk - which uses the bank's own money rather than clients' - was to arbitrage, essentially neutralise trading positions.

This is done by, say, buying a specific type of shares in one portfolio and then selling them in another. The market risk is therefore very small, but Kerviel fooled the system by making it look as if he was selling shares when he was not.

He had tested out his system in late 2007 but the series of trades that caused him to come unstuck began to be taken out only on January 7.

The scale of the fraud and the damage inflicted to SocGen's reputation has led to speculation it could be taken over by a UK bank such as Barclays or even by a local rival such as BNP Paribas. But yesterday sources close to BNP Paribas poured cold water on suggestions that SocGen's long-standing rival would take over its investment banking business in the event of a break-up.

"You would think more than twice before jumping in," they said, pointing to the sub-prime contagion that has cost SocGen €2.05bn and damaged its stellar investment banking division.


Share of Eurostoxx trading on Monday


SocGen's FTSE 100 trades on Tuesday


Usual SocGen trading volume

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