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Jérôme Kerviel: the €50 billion bet behind a €4.9 billion loss
In January 2008, Société Générale found that one junior trader had built bets worth about €50 billion. Unwinding them in three days cost the bank €4.9 billion.
Who he was
Société Générale is one of France's biggest banks.
Jérôme Kerviel joined it in 2000, working in the middle office. That's the team that checks trades, books them and makes sure the numbers add up.
In 2005 he moved to a trading desk called Delta One. His job there was meant to be low-risk: make small trades on stock index futures, each one balanced out by an opposite trade.
That earlier job matters. He knew how the bank's checks worked from the inside.
What happened
According to the bank and the French courts, Kerviel began taking real one-way bets on European stock indexes, using futures contracts on markets like Germany's DAX and the Euro Stoxx 50.
To hide them, he entered fake trades into the system that seemed to cancel them out. On screen, his book looked balanced. In reality it wasn't.
When the bank's checks asked questions, he made up new fake trades or timed them to slip past the checks.
In 2007 the bets went his way. The hidden positions are widely reported to have been sitting on a gain of over €1 billion at the end of that year.
Then, in January 2008, he turned the other way and bet heavily on stocks going up. The positions grew to about €50 billion. That was more than the whole bank was worth on the stock market at the time.
The moment everyone remembers
Over the weekend of 19–20 January 2008, the bank's managers found the positions. They called it a fraud and decided to close everything as fast as they could.
The timing could hardly have been worse. Global stocks were falling hard that week on fears about US housing loans. On 22 January, the US Federal Reserve made a surprise emergency rate cut.
From 21 to 23 January, the bank sold off about €50 billion of positions into a falling market. On 24 January 2008, it announced a loss of €4.9 billion.
Kerviel admitted he had hidden the trades. He said his bosses knew more than they let on and had looked away while he was making money. The bank denied that.
The court cases
The legal fight lasted years.
- October 2010: A Paris court convicted him of breach of trust, forgery and unauthorised computer use. He got 5 years in prison, with 2 suspended, and was ordered to repay the full €4.9 billion.
- October 2012: An appeals court upheld the conviction and the sentence.
- March 2014: France's top court confirmed the criminal conviction but threw out the €4.9 billion damages award.
- September 2016: An appeals court in Versailles found the bank partly to blame for weak controls. It cut his bill to €1 million.
What it teaches
1. Position size is the real risk number
The question was never "was his view right?" In 2007 it was right. In 2008 it wasn't. The real problem was size: bets so big that one bad week could cost billions.
Every trade has a size that matches your account and your stop. Work it out every time with the position size calculator. See how much to risk per trade.
2. Winning can be the dangerous part
The hidden gains in 2007 seemed to prove he was right. Then he bet bigger.
That's a pattern worth knowing in yourself: a good streak makes risk feel smaller than it is. Read about overconfidence in trading, then set your size rule so a winning week can't change it.
After 3 wins in a row, check your next trade's size twice. Same 1%, not "a bit more because I'm on a roll".
3. Records only help if they're true
Fake trades made the book look safe. The bank's numbers said "balanced". The market said otherwise.
Your journal is your own check. Log the real entry, stop, size and result. A trading journal that hides nothing is worth more than one that looks good.
4. When you have to exit, timing isn't yours
The bank didn't choose the week it sold. It sold into a falling market because it had to. Forced exits are often the worst ones. A daily loss limit lets you stop on your terms.
What it doesn't mean
- It doesn't mean the courts found the bank blameless. The 2016 ruling said the bank's weak controls shared the blame. Both sides are part of the record.
- It doesn't mean the €4.9 billion loss was all "his trading". Much of it came from the forced, fast sell-off in a bad week. Some critics have questioned the bank's figures. The courts accepted them.
- It doesn't mean index futures are reckless. They're common tools. The issue was hidden size, far beyond any limit.
- It's not a story you can copy in either direction. His 2007 gains were hidden, unauthorised and short-lived.
Timeline
| Date | Event |
|---|---|
| 2000 | Kerviel joins Société Générale's middle office |
| 2005 | Moves to the Delta One trading desk |
| 2007 | Hidden positions reported to show a gain of over €1 billion |
| Jan 2008 | Positions grow to about €50 billion |
| 19–20 Jan 2008 | The bank finds the positions |
| 21–23 Jan 2008 | Positions sold in a falling market |
| 24 Jan 2008 | Bank announces a €4.9 billion loss |
| Oct 2010 | Convicted; 5 years (2 suspended) and €4.9 billion damages |
| Mar 2014 | Top court upholds the conviction, overturns the damages |
| Sep 2016 | Damages cut to €1 million; bank found partly at fault |
Questions
How much did Jérôme Kerviel lose?
Société Générale lost €4.9 billion closing his positions in January 2008. The positions themselves were worth about €50 billion.
How did Kerviel hide his trades?
According to the bank and the courts, he entered fake trades that seemed to offset his real bets, so his book looked balanced. He had worked in the team that checked trades, so he knew how the checks worked.
Did Jérôme Kerviel go to prison?
He was sentenced in 2010 to 5 years with 2 suspended, and the conviction was upheld on appeal. He served part of the sentence in 2014.
Does Kerviel still owe €4.9 billion?
No. France's top court overturned that award in 2014, and in 2016 an appeals court set damages at €1 million, finding the bank partly at fault.
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