Was stock panic down to a rogue trader?

France's Socit Gnral had been deemed a "sophisticated bank with good controls", says Edward Hadas on Breakingviews. But it has lost its reputation after unveiling e4.9bn of losses caused by rogue trader Jerome Kerviel.

Kerviel traded equity futures for the bank, betting on the direction of stockmarket indices. As with spread bets, traders can gain large exposure from a small stake. Trades are supposed to be hedged, but over the past few months Kerviel allegedly made bets in one direction and produced fictitious hedges, manipulating the bank's computer system to cover his tracks.

Having made gains in December, he deliberately took losing positions (betting on rising European markets) to unwind his gains and conceal his activities, according to the bank. But markets slid fast this month, and by midmonth he was e1.4bn in the red, with total exposure worth around e50bn. On uncovering his ruse, Socit Gnral closed out his positions into a falling market during the first three days of last week, upping losses to e4.9bn.

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Did this cause European stocks to tank last Monday and panic the Fed into a rate cut? It's unlikely. A fire sale would have exacerbated the sell-off, says Capital Economics.The Guardian notes that on Monday alone, Socit Gnral accounted for 8% of trading in the Eurostoxx index; normally it's responsible for 2%-4% of daily volume. But Asian markets had already tumbled overnight and there were worries over US recession and a monoline crisis. Given all this, the Fed probably decided to slash rates before Monday, says David Rosenberg of Merrill Lynch.