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Arment Dietrich

Stocks, Sell-Offs, and Spin

By: Arment Dietrich | January 29, 2008 | 
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Blog written by Morgan Smith

It was discovered last weekend that an employee of the French bank Societe Generale, had made some bad bets on stocks, and then while trying to cover them up, worsened his position even farther.

To the tune of $7.2 billion. Yes, that’s billion, with a B.

$7.2 billion is a lot of money, even for one of France’s largest banks. What may be most interesting about this, is how the story is being laid out for the media. The news was posted in the New York Times Thursday, almost a week after it was discovered by the bank. A week is a long time to wait and announce that you have been defrauded of $7.2 billion. The bank used this free time to sell off many of its positions Monday, before allowing the world to know what was going on.

The other interesting part of the story is the bank and French authorities are saying the trader, Jerome Kerviel, was the sole perpetrator of this vast financial crime. With all the security, auditing, reporting, and accounting large financial institutions must do, it is hard to believe this was not the work of more than one person. Even financial experts are saying it is highly unlikely this is the case. For example, Howard Davies, former chairman of the Financial Services Authority of Britain and now director of the London School of Economics, was quoted in the New York Times as saying “I don’t think we’ve had the full story.” Some were more blunt about their opinions, C. Ricardo Esteves, executive director of Banco Hipotecario of Argentina told the Times, “It is not credible. One person responsible for this? I just don’t believe it.”

It seems the bank is using spinning by omission to distort the fact of the case. This is especially bad, due to the current volatility of the markets and the state of the U.S. Economy in general. It is odd an institution that must be so forthcoming about its financial data would be using spin to distort what happened. You would think that transparency here would be what is needed. Tell investors what happened, regain their trust, put them at ease, and show them how you plan to fix the problem. That makes sense to me. But, then again, maybe that’s why I’m in public relations and not a banker.

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