Jérôme Kerviel believed that he was executing a brilliant trading strategy. Instead, the trader’s activities over the past year appeared yesterday to have cost his employer, Société Générale, €4.9 billion (£3.7 billion), and fuelled a global crisis in stock markets.

The 31-year-old’s web of lies and trades began to unravel late on Friday, as his supervisors spotted an anomaly in his handling of futures contracts on European stock market indices. On Saturday Mr Kerviel was hauled into the bank’s Paris offices where he was questioned by Jean-Pierre Mustier, SocGen’s head of investment banking, and confessed to making a series of unauthorised bets on CAC, DAX and the EuroStoxx 50.

Working through Saturday night and Sunday, the disgraced trader helped SocGen staff to uncover his hidden punts. Most positions, mainly predicting that European indices would rise in 2008, were still open. They would have to be closed on Monday, when the markets opened. But the markets were about to deliver a surprise for SocGen’s already reeling bosses.

On Sunday night, while the bankers worked feverishly in Paris, the Australian stock market had already begun a downward spiral, taking it to its biggest one-day fall in 20 years. A few hours later in Japan shares dived almost 6 per cent and eventually closed down without a single share on the Nikkei 225 in positive territory.

The panic spread through an Asia gripped by the fear of a looming US recession and fresh worries over Chinese banks’ exposure to the sub-prime scandal. The British, German and French markets opened at 8am on Monday and, spooked by the carnage in Asia, the FTSE 100 lost 4 per cent in the first few minutes of trading. Meanwhile, SocGen was preparing to unwind the billions of euros’ worth of futures.

Futures traders are unable to see who is buying or selling contracts in their totally automated market. All trades are done through a third party, although it is possible to see the volume of trades and how many bets remain open at the end of the day.

The only tip-off that something unusual might be occurring was that the cost of some contracts was falling. David Jones, chief market strategist at IG Index, the spreadbetter, said: “There were rumours that there seemed to be an unusually big overhang, that there was a lot of selling every time the market rallied.”

While European indices continued to gyrate, the US Federal Reserve was holding an emergency conference. The policy makers were meeting against the backdrop of markets gripped by panic, but had no idea that the anonymous French bank’s actions were fuelling nervous traders’ fears. Howard Wheeldon, a senior strategist at BGC Partners, the spreadbetter, said: “It would have contributed in my view to the negative conditions on Monday. It’s like going into an estate agent, giving them ten houses and saying that you want them sold by the end of the day. It’s going to drive down local house prices.”

A futures trader agreed. “It would have exacerbated what was happening. It’s just an issue of supply and demand,” he said. On Monday traders had no idea who was selling so heavily. On a day of crazy volatility - yesterday, a far calmer day, saw 2.5 million EuroStoxx 50 March 2008 futures traded, with a total underlying value of €95 billion – SocGen’s sales would not have stood out. The only certainty was that markets were behaving oddly and the panic was pervasive.

By the close of trading on Monday, all the major European markets saw billions wiped off the value of their shares. Unknown to the wider world, SocGen was nursing a €4.9 billion loss. All the opening Asian markets saw was the blood on European trading floors and the sell-offs began again.

The next morning, with Asian markets in freefall and a nervous Wall Street about to open for business, the Fed voted for its shock rate cut.

David Wyss, chief economist at Standard & Poor’s, said: “How much did the market decline in Europe have to do with unwinding those positions? It’s hard to know, without knowing the exact positions, but it certainly looks suspicious. It is probably not the sole cause but I am certainly not ruling it out as a significant factor.”

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