Saturday, January 26, 2008

Societe Generale trader taken into custody

Authorities in Paris will question Jerome Kerviel in a probe into the French bank's announcement Thursday that the 31-year-old trader was behind a $7 billion fraud.

PARIS (AP) -- -- A trader blamed by French bank Societe Generale for a massive fraud was taken into custody on Saturday, judicial officials said.
Financial police in Paris were questioning Jerome Kerviel as part of a probe into Societe Generale's announcement Thursday that the 31-year-old trader was behind a fraud costing the bank euro 4.9 billion (US$7.14 billion), judicial officials said. They were speaking on condition of anonymity because the investigation is continuing.
It was the first time since Thursday's announcement that Kerviel's whereabouts were publicly known, despite an extensive media hunt. Journalists from around the world have staked out Kerviel's apartment, as well as relatives' homes, for days but they failed to catch a glimpse of him, prompting speculations that he was on the run.
Kerviel's lawyer had insisted, however, that he had not fled the country and was available for police questioning.
Judicial officials also confirmed police conducted a search of Kerviel's apartment in the Paris suburb of Neuilly-sur-Seine. They said police also went Friday night to the bank's headquarters, where they were provided with documents relating to the investigation, officials said.
Paris prosecutors are conducting a preliminary investigation based on three complaints: one by the bank accusing Kerviel of fraud, and two by small shareholders.
Global market hit
Societe Generale said it discovered the fraud last weekend and unwound the trader's losing bets starting Monday, when world markets tumbled.
Some analysts have questioned whether Societe Generale exacerbated the fall and indirectly led to the U.S. Federal Reserve's subsequent decision to cut rates.
In an interview published Saturday, Societe Generale's chief executive, Daniel Bouton, insisted the bank's actions after discovering the fraud did not fuel turmoil on world markets.
"It's absurd!" Bouton said of the suggestion, in an interview with Le Figaro daily. "Anyone could calculate our contribution to the market in recent days."
Bouton was quoted as saying the bank, in closing the trader's unauthorized positions, respected market rules that forbid any player from intervening with sums worth more than 10 percent of a given market. The bank says that is why it took three days to close the positions.
The bank maintains it was the biggest loser in the case, because of the timing of the discovery.
Kerviel had been investing the bank's money by hedging on European equity market indices. That means he made bets on how the markets would perform at a future date.
Bouton said the trader had been betting throughout 2007 that markets would fall. "He was therefore winning, virtually," he said.
But the bank says he had overstepped his authority and was wagering more money than he should have.
So at the beginning of January, Bouton said, the trader voluntarily created losing positions, to neutralize his earlier gains and cover his tracks.
But markets dropped this month, and fast. "This sad affair veered into a Greek tragedy: His virtual losing position became huge," Bouton was quoted as saying.
Fraud uncovered
The bank's systems discovered an anomaly on Jan. 18, he said. At midday that day, a Friday, the trader's positions were neutral, but by the end of trading that day the positions were losing euro1.8 billion, Bouton said.
On Sunday, the full scale of the problem was revealed to the bank's management -- "enormous and totally abnormal," Bouton said.
"I decided ... to close the positions and alert the supervisory authorities," he said.
When Asian and European markets collapsed Monday, "that had a catastrophic effect. The losses of Societe Generale became even more enormous," he was quoted as saying.
Ultimately it took three days to close the positions, and the bank lost euro 4.9 billion (US$7.2 billion).
Bouton said the overall health of the bank was not at risk, comparing the situation to arson at a factory of a big manufacturer -- a devastating, but one-time, loss.
Asked if the bank could once again be the target of takeover speculation, he said, "It wouldn't be the first time."
French presidential aide Raymond Soubie said the trader had been dealing with more than euro 50 billion (US$73.3 billion). That figure outstrips the bank's market capitalization of euro 35.9 billion (US$52.6 billion), and is close to the annual GDP of entire nations such Slovakia, Qatar or Libya.
Skeptics including France's prime minister have questioned whether a single futures trader could have managed such unfathomable sums. Adding mystery, the bank says Kerviel may not have made any personal gain from his unauthorized trades.
It remains unclear whether Kerviel's actions, if proved, were out of malevolence, ambition or some other reason. Three union officials representing Societe Generale employees said managers at the bank who briefed them about the fraud told them Kerviel was having family problems.
The debacle generated buzz at the World Economic Forum in Davos, Switzerland, and raised questions sector-wide about risk management.
French Finance Minister Christine Lagarde, speaking Saturday in Davos, said she has been asked to compile a report on the fraud, Dow Jones Newswires reported.
Lagarde said her report will look at "the reality of facts based on real hard data," and "how and why the controls did not work" to prevent the fraud.
Societe Generale's shares have lost nearly half their value over the past six months. After an up-and-down day Friday, the shares closed down 2.5 percent at euro 73.87 (US$108.62).
The company, which also posted another euro 2.05 billion (US$2.99 billion) subprime-related loss, planned to raise euro 5.5 billion (US$8.02 billion) in new capital.

State of Union: Economy is key

Bush will lobby for stimulus plan and may call for more measures to ease housing crunch and cut corporate tax rates. On Saturday he reiterated his hope that the bill will pass swiftly.

NEW YORK (CNNMoney.com) -- The state of the slowing economy and how to energize it - now and beyond - will be a focal point of President Bush's State of the Union address on Monday.
Indeed, he pledged during Saturday's Presidential radio address to tout the bipartisan stimulus plan during next week's speech; "...I believe that with swift action, we can give our economy the boost it needs to continue expanding and creating new jobs for our citizens," he said. He also reiterated his hope that the plan will be enacted swiftly.
Bush, in his last year of office, is unlikely to make any new economic proposals on Monday night, as he has done in past addresses. Last year, for instance, he called for a change in how the government taxes money used to buy health insurance, and he asked Congress to set a goal of reducing American gasoline consumption by 20 percent over 10 years.
"I think there will be a pretty significant emphasis on what they're doing in the immediate term to shore up the economy," said Scott Hodge, president of the Tax Foundation, a research group advocating for a simpler tax code and lower taxes. "There's so much anxiety in the markets and in business. I think he'd want to assure people they've taken the appropriate actions."
This year, before discussing the war in Iraq, Bush is expected to promote and call for swift passage of the $150 billion economic stimulus package brokered between House leaders and Treasury Secretary Henry Paulson.
The stimulus deal may face some resistance in the Senate. Some Democratic senators are unhappy that their House colleagues gave up on the party's push to extend unemployment benefits in addition to offering consumer rebates and business tax breaks.
The economic proposal, announced last week, also includes two housing measures intended to make it easier for consumers to obtain mortgages or refinance expensive subprime loans.
Beyond the stimulus plan. Bush may use the State of the Union address to push for other measures intended to ease the housing downturn, some experts said.
"Look for a pitch for tax-related provisions, such as opening the door for states to use tax-free bonds to help homeowners refinance out of unaffordable subprime [adjustable-rate mortgages]," said Jaret Seiberg, senior vice president at the Stanford Group, a Washington policy research firm.
Seiberg added that he believes Bush may endorse a real estate industry plan to offer $5,000 tax credits to first-time home buyers.
The president will also use the stimulus package as a launching-off point to call once again on lawmakers to permanently extend the tax cuts he engineered in 2001 and 2003 that will otherwise expire in three years. White House Press Secretary Dana Perino said Bush will factor an extension into his 2009 proposed budget, which will be released Feb. 4.
The administration had originally wanted such measures included in the stimulus plan. Proponents and critics of making the tax cuts permanent acknowledged that adding them to a short-term stimulus package could delay its passage because of the fierce disagreement between Democrats and Republicans over the issue.
Critics questioned how much such a move would stimulate the economy in the short-term. Proponents, however, said investors and businesses would feel more confident making investments today if they knew what their tax bill will be tomorrow.
"The best thing we can do to deal with uncertainty in the economy is make the tax cuts we passed permanent," Bush said in a speech to congressional Republicans on Friday.
Giving business a hand. One measure the president may push for is lower corporate tax rates - a campaign led by Treasury Secretary Henry Paulson.
The stimulus proposal announced Thursday also includes tax breaks for businesses to spur them to invest in plants and equipment.
"I'm surprised how readily the House agreed to the business tax breaks in the stimulus package. That may empower proponents of lower corporate taxes," said Greg Valliere, chief political strategist at the Stanford Group.
Right now the top income tax rate for corporations is 35 percent. Proponents of lowering it say it puts the United States at a competitive disadvantage since the majority of economically developed countries have lower corporate tax rates. U.S. companies benefit from bigger tax breaks but have to spend time and money to take advantage of them.
"[Bush] could try to put out a marker," said Hodge of the Tax Foundation.
At a conference of CEOs last summer, Paulson asked panelists whether they'd like to see the corporate tax rate lowered to 27 percent from 35 percent and preferences such as the research and development credit eliminated.
Rep. Charles Rangel, D-N.Y., chairman of the House Ways and Means Committee, last fall proposed a major tax overhaul that included lower corporate tax rates. There is little consensus, however, between Democrats and Republicans about how low corporate tax rates should be.
But Bush is not likely to do more than lay out the big picture of his agenda on Monday. "I expect broad statements and no specifics," said Clint Stretch, managing principal of tax policy at Deloitte Tax. More telling, he said, will be the president's 2009 budget proposal.

Ten of the world's finest shotguns

A fine shotgun combines beauty, ergonomics and durability into one elegant steel and walnut package that will last for generations. These are the highlights from Griffin & Howe, one of the nation's leading dealers in fine guns.
By Phil Bourjaily

1. Purdey Best (Pair)
London gunmakers like J. Purdey and Sons are to shotguns what Savile Row tailors are to suits. In business since 1814, Purdey's specializes in "bespoke" guns made to a customer's measure. Order one new and you can expect to pay the price of a small house and wait two years for your gun to be finished.Matched pairs like these two guns are for high-speed shooting when the birds fly thick. A loader stands close behind the shooter, ready to take his Lordship's empty gun and hand him a loaded one.
Price: $120,000 (pair)
Gauge: 12

2. L.C. Smith Monogram
American double shotguns flourished from the 1890s until shortly after World War II, when the public demand for cheaper, mass-produced pump and semiautomatic guns killed the old classics. The high grade L.C. Smiths like this Monogram Grade were among the most heavily decorated guns made during the so-called Golden Age of American shotguns, in the 1930s and 40s. This heavyweight gun accepts powerful magnum loads intended for high-flying ducks and geese.
Price: $12,000
Gauge: 12

3. Perazzi SCO Sporting
Perazzi's earned public notoriety recently as Vice President Cheney's gun of choice for quail and attorneys. Shotgun aficionados, however, have long known these wonderfully sleek Italian guns as winners of countless target shooting titles. Perazzis debuted in the early 60s, and ever since they've been among the top guns of international competitors. This beautifully engraved SCO model is made for Sporting Clays.
Price: $25,000
Gauge: 12

4. Krieghoff K-80
Among competitive trap and skeet shooters, the name "Kreighoff" represents the last word in target-crushing consistency. Machined with Teutonic precision in Ulm, Germany, the K-80 isn't sleek, but it's built to shoot forever. This K-80 comes with four sets of barrels for skeet competition in four different events. It's been decorated with gold engraved ducks and pheasants to remind the owner of days afield.
Price: $13,500
Gauge: 12, 20, 28 and .410 barrels

5. Browning Superposed
John Browning of Morgan, Utah, was the greatest, most prolific inventor of both sporting and military guns in modern times. His last gun, the Superposed, was an expensive gun that debuted just in time for the Depression. Its Belgian factory was occupied by the Nazis in World War II, but the Superposed survived to achieve tremendous popularity by the 1960s. Superposeds remain in production as custom order guns today. The Midas grade model, with its gold inlaid pheasants and ducks, is one of the most lavishly decorated models.
Price: $21,500
Gauge: 410

6. Beretta SO-4
After 475 years in the gun business, you would think Beretta might have learned a thing or two about making shotguns. They have: The SO-series guns stand among the world's finest. Even at their premium prices, SO guns are a relative bargain with fit, finish and engineering the equal of guns costing much more. This S0-4 will withstand decades of high volume skeet shooting, and still look gorgeous in the winner's circle.
Price: $8,125
Gauge: 12

7. Fabbri Over-Under
Think of Italy's Fabbris as the Lamborghinis of shotguns -- stunning blends of beauty and performance at a "if you have to ask, you can't afford it" price. Fabbri makes just a handful of guns a year for such luminaries as Steven Spielberg, Tom Selleck and King Juan Carlos of Spain, among others. The swirling brown and blue patterns on the steel of this gun are the result of case coloring, a process in which the metal parts are hardened by heating them in a steel box with charcoal, bone and leather.
rice: $82,500
Gauge: 12

8. Boss O/U
English makers are known for their side by side shotguns (barrels arranged alongside one another), but the Boss O/U (barrels stacked vertically) is a graceful exception to the rule, and first appeared in 1909. This 1925 example is a beautiful between-the-wars gun. Light in weight for easy carrying in the field, this gun is richly decorated with the rose and scroll pattern typical of British "Best" grade guns.
Price: $48,000
Gauge: 12

9. Cosmi Autoloader
Meticulously hand-fitted parts and a complex design set the Cosmi apart from mass produced semi-automatic, making it by far the most expensive repeating shotgun in the world. The Cosmi's ingenious self-loading mechanism dates to 1925 and requires over 100 hand-fitted internal parts; it's the Swiss watch of fine shotguns. Cosmis hold up to eight shells in a tubular magazine in the buttstock. Famous -- or perhaps infamous -- Cosmi owners include Leonid Brezhnev and Benito Mussolini.
Price: $8,250
Gauge: 20

10. Connecticut Shotgun Manuf. Co. Model 21
Of all the American classic doubles that disappeared following the end of World War II, the Winchester Model 21 lasted the longest, limping along on life-support until the early 80s. The 21 is one of the classics revived by Connecticut Shotgun Manufacturing Company, which owns that Winchester model's name and patent. Made right here in the U.S. the guns are probably built better now than they ever were.
Price: $19,500
Gauge: 16