Kerviel. Scene 1. Take 1.

Poor Jérôme Kerviel. Fame is often hard won, infamy easier so.

His dubious accolade as the top of the rogue trader league has unearthed an unsavoury insight into Société Générale, and raised questions over just how much of a blind eye was turned to Kerviel’s sleights of hand.

Remember, that at one stage the young Kerviel was making substantial profits on his unauthorised deals – so much so, in fact, that he didn’t even know how to come clean and tell his superiors that he made almost €1.5bn for the bank. Instead, he continued to hide his activities, leading to the mess that he, and the bank, find themselves in now. But Kerviel’s testimony to date has also exposed some lax supervision. He took no holiday in 2007, afraid to hand over his positions to a colleague who would undoubtedly smell a rat. But no-one seemed perturbed that Kerviel wasn’t heading for the slopes or the Côte d’Azur for a few days’ break. Even he has expressed surprise that the biggest warning bell of all – his unwillingness to relinquish his positions – went completely ignored.

And what life for Kerviel now? Book rights, a movie? Or, as in Nick Leeson’s case, commercial manager of a non-descript football team in the west of Ireland. It’s a big come down from quaffing champagne and downing cocktails in Singapore.

But John Rusnak, the US trader who racked up a $700m loss at AIB’s subsidiary Allfirst, seemed like he was already thinking of the movie synopsis before he was shipped off to prison to serve over seven years. What’s more, he also claimed he was in a similar frame of mind to Kerviel, his conscience nagging at him to own up. But that was at a stage when Rusnak was $100m in the red, not even making a profit.

In Rusnak’s last interview, with the Baltimore Sun, before he went to prison, he spoke about how he could have stolen almost any amount he wanted to from Allfirst.

“I had a lot of authority,” he said. “If I was looking to profit, I would have shipped $20m out of the country and then left. There was very little oversight. But that's not what happened." He said he realised he was in a spot of bother when he had lost a "minuscule" amount - $100m.

"Every single day I was there, I should have reported the losses and stopped trading," he continued. "It was my inability to say no and admit failure. I worried every day, and every night I couldn't sleep. I knew I was betraying people's trust.”

But here’s where the appeal, surely, for the Hollywood types should have kicked in. Rusnak had to tell his kids he was going to prison.

"We're still going to be a family,” he told them. “But Daddy did something wrong. It's like someone cheated on a test at school. I cheated at work, and then I told the truth. And now I have to go away for a while." Perhaps not Oscar potential, but it has TV movie written all over it.

Kerviel should pay heed. He’s likely going to have a few years in a confined space to ponder his past. He’ll have to think of a new way to make a living. Script consultant may just be one of them.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/01/27/ccsocgen127.xml

http://www.tribune.ie/article.tvt?_scope=TribuneFTF&id=10321&SUBCAT=&SUBCATNAME=&DT=02/02/2003%2000:00:00&keywords=kleenex&FC=

http://www.baltimoresun.com

http://www.jeromekerviel.com

Wynn-win for Coughlan in Macau gamble

Just as the tiny gambling Mecca of Macau is being rocked by a sensational corruption trial, one Clare native is hoping to weave his magic on the former Portuguese colony off the coast of mainland China.

After a decade working with the luxury Peninsula hotel group, Ian Coughlan has taken the 45-minute boat trip from Hong Kong to take on a new challenge at the Wynn Resorts’ operation in the Chinese special administrative region (SAR).

And Coughlan could have hit a personal jackpot.

While he initially moved to Macau back in January to work as director of hotel operations with Wynn, he has been recently promoted to president of the gleaming, gold-fronted 20-storey resort, which boasts 600 rooms and a 100,000 square feet casino.

A tasty remuneration package has been negotiated for 48-year-old Coughlan, who was born and raised in Ireland, but has spent most of his adult life abroad, working in hotels in Switzerland, London, Atlanta, Hawaii and Asia.

An SEC filing last week by Wynn Resorts reveals that Coughlan, whose initial contract runs five years, will be paid a base annual salary of $750,000 (€511,000), with the prospect of earning a bonus of a further $750,000 this year alone should targets be met. And that’s not all.

Married to Pamela, and with two young children – Kyle and Emmet – Coughlan has also negotiated three return business class flights a year for his family, to either Singapore or Ireland. Four return business class flights with Cathay Pacific from Hong Kong to London next March to make it home in time for St Patrick’s Day will cost almost €14,000 (HK$159,412).

Meanwhile, Coughlan and his family receive gratis accommodation while in Macau “at a level commensurate with [the] employee’s position”. He’ll also get a “luxury automobile” and will always travel first-class on business. And don't forget the health plan and paid membership to clubs, societies and professional associations.

Not a bad deal.

But just as Coughlan is settling into his new role, the Macau casino industry has stumbled under an unwelcome spotlight.

The Wynn Macau resort – whose Las Vegas-based quoted parent has a market capitalisation of $15bn (€10.2bn) – is one of a number of new casinos jostling for a cut of the island’s massive $7.2bn gambling income. Last year the SAR overtook Las Vegas as the world’s largest gaming centre.

Wynn Resorts, which is headed by Steve Wynn, has earmarked a total of $1.2bn for its Macau hotel, which opened in 2006. A portion of that fund is being used to develop a new extension. Among those that stumped up when debt raised to fund the initial construction was syndicated, was AIB.

Wynn is just one of the companies riding a wave of investment in the former colony, which generates almost all its tax income from the gambling sector.

The floodgates opened in 2002, when Macau liberalised its gaming market and broke now 85-year-old Stanley Ho’s monopoly.

That year there were 11 casinos with 339 gaming tables and 808 slot machines. Now there are 25 casinos, 2,970 gaming tables and 7,349 slot machines. All this on a 28-square-kilometre area with a population of roughly 500,000.

And gambling-mad Asians are flocking to it.

According to Steve Wynn, the company’s Macau resort reported a staggering $900m in chip sales within 13 days of opening its doors in September last year.

In the three months to the end of September 2007, it recorded revenue of $347.6m, and in the nine-month period to the end of September, sales topped $1bn.

Adjusted Property EBITDA (earnings before interest, taxes, depreciation, amortisation, pre-opening costs, property charges and other, corporate expenses) at the Macau resort totalled $92.8m in the three months to the end of September 2007 (only slightly less than the Las Vegas casino), and $264.5m in the nine-months to the end of September.

Wynn’s emergence in the SAR has also forced US competitor Sands to up the ante. Earlier this year it said that its operating costs in Macau had climbed because it had to raise wages there to compete with the Wynn resort.

The Sands’ Macau president might well be looking enviously at Coughlan’s lucrative deal.

While Macau’s gambling industry has traditionally been the focus of a constant turf war between triad gangs (even Stanley Ho’s underworld connections have been the subject of extensive speculation and investigation), it’s corruption that is now blighting the landscape.

Last week the trial commenced of Ao Man-Long, the former secretary for transport and public works in Macau.

He’s accused of taking bribes, of money laundering and abuse of power that saw him amass a fortune of more than $100m in just six years – 57-times his family’s income during the period. He’s alleged to have helped developers win tenders for a number of projects in Macau, including the Venetian hotel and casino, owned by Sands.

The courtroom drama has rocked Macau, led to protests and even delayed the construction of one major new casino by Australian businessman James Packer – son of Kerry ‘Packer-Whacker’ Packer.

The Wynn group is also trying to snap up land to expand its Macau operations. Apart from extending its existing resort, it reported recently that it has submitted an application to the local government to obtain a concession to use an additional 52-acres in Macau’s Cotai district.

Coughlan is going to have plenty to keep him occupied. At least he can escape back to Ireland in luxury when things get rough.

http://www.wynnmacau.com/index.jsp#

http://www.forbes.com/feeds/ap/2007/10/31/ap4286982.html

http://www.hotel-online.com/News/PR2004_2nd/June04_WynnMacau.html

http://www.olamacauguide.com/wynn-resorts.html

http://www.onlinenevada.org/steve_wynn

http://www.taipeitimes.com/News/biz/archives/2006/10/22/2003332888

http://www.feer.com/articles1/2007/0705/free/p020.html

http://www.forbes.com/markets/2007/11/02/las-vegas-closer-markets-equity-cx-er_ra_1031markets40.html

http://english.peopledaily.com.cn/200506/22/eng20050622_191700.html

http://www.theaustralian.news.com.au/story/0,25197,22716257-643,00.html

http://www.reuters.com/article/ousiv/idUSHKG4479220071104

http://www.lasvegassun.com/sunbin/stories/gaming/2005/may/10/518734415.html

https://www.cia.gov/library/publications/the-world-factbook/geos/mc.html

http://www.ccac.org.mo/en/

http://macaudailyblog.com/general/macau-corruption-protest-video-clip/

http://en.wikipedia.org/wiki/James_Packer

http://www.lasvegassands.com/

Credit where it’s due

The newspapers these days must put the toughest of Wall Street traders off their morning cereal.

But even as the news just seems to get worse and worse, some outfits are seemingly sticking up two fingers right back up at the markets.

Ireland has become renowned for being a soft regulatory touch for the listing of debt instrument issuances, and it shows. There are over 90 firms registered in the country with ‘CDO’ (Collaterised Debt Obligation) in the title. Firms from Lehman Brothers– with its Saphir vehicle, to Deutsche Bank with its upbeat-named Jazz CDO, have settled 3,000 miles from the US financial hub, and called Dublin home.

But there have been major structural cracks appearing, the first seen in Dublin-registered SIVs (Structured Investment Vehicles) Cheyne Finance, and subsequently Rhinebridge.

A $2bn SIV, Rhinebridge was sponsored by German bank IKB.

In mid-October it defaulted on its debts to the owners of Rhinebridge’s commercial paper. A receiver, Deloitte, was appointed to Rhinebridge to try and sort out the mess.

“Rhinebridge ran into difficulty due to the recent events in the credit markets resulting in it being unable to fund its short term debt repayments while at the same time the market value of the assets have deteriorated,” said Deloitte a few weeks ago.

It was the second time an Ireland-based SIV had got into trouble. During the summer, Cheyne Finance also stopped paying its short-term debt and Deloitte was also appointed receiver. Royal Bank of Scotland then secured exclusive talks to refinance the $6.6bn fund, but the period of exclusivity expired last week. A deal is still expected to be concluded, however.

But CDOs – an Irish favourite - are even riskier than SIVs, because they’re more expensive to finance. SIVs are open-ended investment structures that can be continually refinanced (even if it isn’t that easy these days), while CDOs are closed-end, with set maturity dates. Merge the two, and you get SIV-lites.

Confused? Good, that’s the way for the banks like to have everyone.

The Saphir vehicles established here by Lehman have already drawn fire from Australia.

Sydney-headquartered Grange Securities, which was acquired by Lehman Brothers in January this year, began selling CDOs called Mahogany Notes through a company called Mahogany Capital, to Australian local councils and other investors in 2004, and again in 2006, according to the Sydney Morning Herald.

The Mahogany Notes were invested in Saphir Notes, which are in turn products from Lehman Brothers, manufactured by its Dublin-based Saphir Public Finance company.

Both the Mahogany issuances are now well underwater and that’s caused some upset.

And as if banks were not getting into enough trouble with the residential mortgages in the US, there’s the prospect of what might happen with so-called commercial-backed mortgage securities (CBMS), with musings over recent weeks that this could be the next of level of subsidence to hit markets.

Just recently though, despite all the turmoil, a new CBMS vehicle was registered in Dublin. Pan European Hotels CBMS, the formation of which was administered through the Channel Island’s office of Allied Irish Banks, is bent on issuing CDOs despite the current turmoil.

It could be someone thinking big, or someone thinking small and one swallow, as they say, doesn’t make a summer – the fact they’re thinking about it at all is a bold move.

Seems like there may be some life left in the debt markets after all.

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article2726873.ece

http://www.risk.net/public/showPage.html?page=328506

http://www.deloitte.com/dtt/press_release/0,1014,sid%253D2833%2526cid%253D176787,00.html

http://www.ft.com/cms/s/0/6e6e2f26-7ceb-11dc-aee2-0000779fd2ac.html

http://www.arandomwalk.com/2007/08/30/aib-cheyne/

http://ftalphaville.ft.com/blog/2007/08/29/6895/the-cheyne-finance-wind-up-letter/

http://www.iht.com/articles/2007/11/05/business/hedge.php?WT.mc_id=rssbusiness

http://ragingbull.quote.com/mboard/boards.cgi?board=CLB01194&read=114340

http://www.grangesecurities.com.au/dynamicpages.aspx?cid=1&navid=1

http://www.smh.com.au/news/business/asic-protects-cdo-investors-names/2007/11/04/1194117879435.html