Nick Leeson and Barings Bank Incident

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  • Topic: Barings Bank, Nick Leeson, Derivative
  • Pages : 7 (2601 words )
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  • Published : July 18, 2010
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Events leading to Barings Bank's collapse
Barings Bank's activities in Singapore between 1992 and 1995 enabled Nick Leeson to operate effectively without supervision from Barings Bank in London. Leeson acted both as head of settlement operations (charged with ensuring accurate accounting) and as floor manager for Barings' trading onSingapore International Monetary Exchange, or SIMEX. This placed Leeson in the position of reporting to an office inside Barings Bank which he himself held.

Because of the absence of oversight, Leeson was able to make seemingly small gambles in the futures market and cover for his shortfalls by reporting losses as gains to Barings in London. Specifically, Leeson altered the branch's error account, subsequently known by its account number 88888 as the "five-eights account", to prevent the London office from receiving the standard daily reports on trading, price, and status.

Using the hidden "five-eights account," Leeson began to agressively trade in futures and options on SIMEX. His decisions routinely lost substantial sums, but he used money entrusted to the bank by subsidiaries for use in their own accounts. He falsifed trading records in the bank's computer systems, and used money intended for margin payments on other trading.

Barings Bank management in London at first congratulated and rewarded Leeson for what seemed to be his outstanding trading profits. After two years of steady losses covered up by the unknown "five-eights" error account, Barings Bank auditors finally discovered the fraud, but it was too late. Nick Leeson's activities had generated losses totaling £830 million. [2] Barings collapsed on February 26,1995.

Barings was purchased by the Dutch bank/insurance company ING for the nominal sum of £1 along with assumption of all of Barings liabilities. Barings Bank therefore no longer has a separate corporate existence, although the Barings name still lived on as Baring Asset Management. BAM was split and sold by ING to MassMutual and Northern Trust in March 2005.

Nick Leeson's autobiography, covering the events leading up to the collapse, was dramatised in the movie Rogue Trader.


Biography :: from
The Build Up To 1995
The week before Nick Leeson disappeared he had kept throwing up at work.

Colleagues did not know why but were soon to find out.

The ego of a 28-year-old trader on the Singapore Monetary Exchange and the greed and stupidity of a 233-year-old bank had combined to destroy an investment empire and in the process stunned the world…

A Young Nick Leeson
Nick Leeson's life started as a classic rags-to-riches tale. Born on 25th February 1967, he was the working class son of a plasterer from a Watford council estate, who failed his final maths exam and left school with a mere handful of qualifications. Nonetheless, in the early 1980s, he landed a job as a clerk with royal bank Coutts, followed by a string of jobs with other banks, ending up with Barings, where he quickly made an impression and was promoted to the trading floor.

Before long, he was appointed manager of a new operation in futures markets on the Singapore Monetary Exchange (SIMEX) and was soon making millions for Barings by betting on the future direction of the Nikkei Index. His bosses back in London, who viewed with glee his large profits, trusted the whizzkid. Leeson and his wife Lisa seemed to have everything: a salary of £50,000 with bonuses of up to £150,000, weekends in exotic places, a smart apartment and frequent parties and to top it all they even seemed to be very much in love.

The job of a derivatives trader is akin to a bookie once removed, taking bets on people making bets and Leeson started by buying and selling the simplest kind of derivatives futures pegged to the Nikkei 225, the Japanese equivalent to the UK's FTSE 100. At the time the trader only had to put down a small...
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