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SocGen raises questions over Fed rate cut Paul J Davies, David Oakley, James Mackintosh,
Ralph Atkins and Krishna Guha FInancial
TImes The Federal Reserve had no inkling about Société Générale’s firesale of stock futures following the discovery of a rogue trader when the US central bank made its emergency interest rate cut. The question being asked by some in the markets is: was the Fed duped into a clumsy and panicked move by the clean-up operation for Jérôme Kerviel’s mammoth losses for the French bank? There are many prepared to believe that, without SocGen’s huge derivatives sales, the mood in the stock markets would not have been half as bleak.
“It is now clear that the Fed was panicked into a 75 basis point rate cut by the actions of a rogue trader and the bank’s unwinding of his positions,” said one London-based hedge fund manager. “The action also clearly suggests that their French and ECB counterparts did not tell them what had happened at SocGen.” Others point to circumstantial evidence to show that a market rout was well under way and being fuelled by entirely different means. SocGen has said it began unwinding those bets on Monday. This is thought to have amounted to about 10 per cent of the volume on Monday, or about €25bn. Stock markets in Asia and then Europe certainly suffered but Asia was already down heavily before SocGen began jettisoning those trades, which included no Asian exposures. SocGen itself does not believe it contributed to the market falls.
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