All his fault

JK scowling

A COUNTRY bumpkin from Brittany, seduced by a corrupt banking system and the avarice of his bosses, or “a crook, a fraud and a terrorist”? These were the competing descriptions that a French court was asked to weigh in the case of Jérôme Kerviel, a rogue trader who almost laid low Société Générale, France's second-biggest bank. On October 5th the court ruled unequivocally that Mr Kerviel was guilty, sentencing him to five years in jail, the maximum sentence it could hand down (although it suspended two years of the term). Mr Kerviel, who has become something of a popular hero in France for outwitting fat-cat bankers, is appealing against the decision.

The court's order that Mr Kerviel repay the bank €4.9 billion ($7 billion), the amount that it lost in January 2008 unwinding his trades, also caused public consternation. Although Mr Kerviel has no hope of repaying even a fraction of this sum, the award in effect repudiates his argument that the bank shared the blame for his trading because it had looked the other way when his positions were profitable. Happily for SocGen it also makes it more difficult for shareholders to sue the bank.

Even so, SocGen has lots of egg on its face. Its weak oversight allowed a relatively junior employee to place bets worth more than the bank's entire capital. Although SocGen has since spent €130m tightening its controls, Britain's Financial Services Authority fined the bank in August for weaknesses in its record-keeping and reporting.

In this SocGen is not unique. Several other banks have been fined for similar misdemeanours. Traders routinely talk about mysterious trades appearing or disappearing, and of the difficulty of reconciling positions at the end of the day. In benign markets and with honest employees these mistakes usually balance one another out, but SocGen's experience sounds a loud warning to all investment banks and their regulators that they need to pay more attention to the boring old back office.

The case of Mr Kerviel—like that of Nick Leeson, whose bets almost two decades ago destroyed Barings Bank—should not obscure wider questions, either. How to remunerate legitimate traders who stand to earn bucketloads if they make successful bets but lose little if they suffer losses is prime among them.