Nick Leeson and Barings Bank Incident Analysis

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Between 1992 and 1995, Barings Bank’s operations in Singapore allowed Nick Leeson to work independently without oversight from Barings Bank in London. Leeson held the positions of head of settlement operations and floor manager for Barings’ trading on the Singapore International Monetary Exchange (SIMEX). As a result, Leeson reported to an office within Barings Bank that he personally controlled.

Due to the lack of supervision, Leeson was able to make relatively small bets in the futures market and hide his losses by reporting them as gains to Barings in London. To achieve this, Leeson manipulated the branch’s error account, also referred to as the “five-eights account” with the account number 88888, in order to prevent the London office from receiving their regular reports on trading, prices, and status. Taking advantage of this secret account, Leeson started trading aggressively in futures and options on SIMEX.

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His decisions consistently resulted in significant financial losses, but he utilized funds entrusted to the bank by its subsidiaries for their own accounts. He manipulated the bank’s computer systems to falsify trading records and used money intended for margin payments in other trades. Initially, Barings Bank management in London praised and rewarded Leeson for what appeared to be exceptional trading profits. However, after two years of concealing losses through the unidentified “five-eights” error account, auditors eventually uncovered the fraud, albeit too late. As a result of Nick Leeson’s actions, losses amounting to ? 830 million were incurred. Barings Bank collapsed on February 26, 1995. Subsequently, the Dutch bank/insurance company ING acquired Barings for a symbolic amount of ? 1 and assumed all of Barings’ liabilities. Consequently, Barings Bank no longer exists as a separate entity, although its name continues to be associated with Baring Asset Management. ING later sold BAM to MassMutual and Northern Trust in March 2005. Nick Leeson’s autobiography, which details the events leading up to the collapse, was adapted into the film Rogue Trader.

Prior to 1995, Nick Leeson experienced physical illness at work, which his colleagues were unaware of until later. The disappearance of Leeson, a 28-year-old trader on the Singapore Monetary Exchange, revealed the combination of his ego and the misguided actions of a 233-year-old bank. This collaboration led to the destruction of an investment empire and astounded the world. Leeson’s background, beginning with his birth on February 25, 1967, follows the classic narrative of starting from poverty and achieving wealth. Hailing from a Watford council estate, Leeson’s father worked as a plasterer, and he himself left school with minimal qualifications after failing his final math exam.

Nonetheless, in the early 1980s, he secured a position as a clerk with royal bank Coutts, and then went on to hold various roles with other banks. Eventually, he ended up at Barings, where he quickly impressed and was promoted to the trading floor. Soon after, he became the manager of a new team operating in futures markets on the Singapore Monetary Exchange (SIMEX), and he soon began generating substantial profits for Barings by speculating on the future direction of the Nikkei Index. His superiors in London were delighted by his impressive gains and held great trust in him. Leeson and his wife Lisa appeared to have it all: a salary of £100,000 with bonuses up to £150,000, luxurious weekends in exotic locations, a stylish apartment, and frequent parties. It seemed they were also deeply in love. The role of a derivatives trader is similar to that of a bookie, as they place bets on people making bets. Initially, Leeson started trading the simplest form of derivatives futures linked to the Nikkei 225, which is the Japanese equivalent of the UK’s FTSE 100. During that time, traders only had to put down a small percentage of the trade value, allowing for potential losses to far exceed the money at stake.

By the end of 1993, Leeson had made more than ?10m, which amounted to around 10% of Barings’ total profit that year. Barings, however, remained oblivious to Leeson’s actions and considered itself immune to any potential losses, as he claimed to be executing purchase orders for a client. Unbeknownst to the company, Leeson was actually concealing his losses in error account 88888, which had initially been established to rectify a mistake made by a less experienced team member resulting in a ?20,000 loss. Leeson now utilized this account to camouflage his own accumulating losses.

The bank made a critical error by allowing Leeson to be both Chief Trader and responsible for settling his trades, which is typically divided. By December 1994, account 88888 had accumulated $512 million in undisclosed losses. Faced with desperation, Leeson bet that the Nikkei index would not drop below 19,000 points. This seemed logical at the time because of Japan’s recovery from a 30-month recession. However, on January 17th, 1995, an earthquake measuring 7.2 in magnitude struck Kobe, Japan. As a result, the previously steady Nikkei index plummeted by 7% within a week.

Leeson requested additional funds in order to continue trading as losses were accumulating, with the expectation that he could resolve the situation through subsequent deals. He predicted a recovery and stabilization of the Nikki at 19,000 following the earthquake. However, Barings did not implement any hedges or protective measures for their substantial exposures. Regrettably, the market did not rebound as anticipated. In an unsuccessful attempt to manipulate the market, Leeson bought more than 20,000 futures contracts valued at around $180,000 each within a three-month timeframe. These trades constituted approximately three quarters of the $1.3 billion loss suffered by Barings.

After discovering the events that had occurred, Barings executives promptly notified the Bank of England about their essentially bankrupt status. Nicholas William Leeson, just two days away from his 28th birthday, vanished from Singapore and left a hastily written note on his desk expressing regret for his actions. Expecting imprisonment for his fraudulent behavior, Leeson and his partner chose to escape to the United Kingdom instead of staying in the Far East. They initially sought refuge at an exclusive resort in Borneo before traveling to Frankfurt. Despite being globally wanted and prominently featured in newspapers, Leeson managed to board his flight to Europe using his real name while disguising himself with a baseball cap.

Upon his arrival, the German authorities were alerted and the Police greeted Leeson. The news of Leeson’s arrest caused celebration in the futures markets worldwide. His actions led to the complete downfall of Baring investment Bank, which had HM The Queen as a client. The bank faced liabilities worth $1.3 billion, surpassing its entire capital and reserves. Investors lost their savings and 1,200 employees, including Leeson’s colleagues, lost their jobs. Dutch bank ING acquired most of Barings’ debts and purchased the bank for a significant sum. While Leeson was clearly responsible for his actions, there were questions about whether senior officials at the bank knew about his fraudulent activities. In light of the collapse, people referred to the famous Watergate quote: “What did the President know, and when did he know it?” Despite Leeson’s undeniable wrongdoing, it remained uncertain if higher-ups at the bank could have been aware of his activities. According to a report by the Bank of England, it concluded that the ambitious trader had acted independently and deceived his superiors until it was too late to save the bank.

Most of the old school in Barings did not understand or care to master derivatives trading. However, the bank itself cannot be completely blameless as an internal memo in 1993 had warned about the dangers of allowing Leeson to be both trader and settlement officer. Despite concerns expressed by SIMEX in January 1995, the bank still wired Leeson $1 billion to continue his trading.

The Singapore authorities were shocked by the claims made by Leeson’s superiors, who all had to resign, that they had no knowledge of error account 88888. After being arrested in Germany, he tried desperately for several months to avoid extradition back to Singapore but was unsuccessful. Eventually, a court in Singapore sentenced him to six and a half years in December 1995 after he admitted guilt on two charges: deceiving the bank’s auditors and cheating the Singapore exchange. Since he had already spent nine months in confinement in Germany while waiting for extradition, his sentence was applied retroactively starting from March 2, 1995.

According to reports, while in prison, he engaged in vigorous exercise, experienced a religious awakening, and passed the time by pacing. It appears that his personal life followed a similar pattern to his professional life. His wife, Lisa, took on a job as an airhostess in order to visit him regularly and even assisted him in writing his book, Rogue Trader. Initially, their marriage managed to withstand the strain of being separated. However, Lisa could not tolerate his admission of infidelity with Geisha girls, resulting in a divorce. Her subsequent remarriage to another City trader further crushed his spirit, leading to severe depression over losing his once-dedicated wife.

Shortly after, Leeson received a diagnosis of colon cancer, the same illness that had claimed his mother’s life during his youth. He transitioned from a carefree young person who enjoyed heavy drinking to an extremely emaciated individual. Chemotherapy resulted in significant hair loss and a drastic decrease in weight. On top of everything, Leeson’s father, employed as a plasterer, was also diagnosed with myeloma following Nick’s own illness. The prison conditions further weakened his immune system; Nick spent 23 out of every 24 hours confined in a cramped cell alongside two other inmates.

Cellmates were members of rival gangs, so when there were fights, Nick was inevitably involved. Nick would sleep on the rough concrete floor and his breakfast consisted of three slices of bread. The other meals consisted of monotonous rice with a small amount of chicken or vegetables. According to Nick, the worst period he experienced was the seven months between March and October 1996. During this time, Lisa’s visits and daily letters stopped coming, which was more difficult for him to handle than even having cancer: “In prison, it is crucial to have something to hold onto. That something for me was my relationship with Lisa until suddenly I became unsure about what was happening between us.”

After two weeks, my spouse replied with a “yes” to the divorce letter I sent. The days in prison seemed to pass by slowly, so I would immerse myself in crime thrillers to make time go faster. During my exercise hour, I jogged around the prison basketball court. However, in early 1998, troubling symptoms emerged – feeling dizzy whenever I stood up and leaning against the wall for support. The prison doctor dismissed it as old age, even though I was only 30 at that time! Despite finally getting along with my cellmate, I refused to change once again and ended up spending a month in solitary confinement.

After my emergence, people immediately commented on my significant weight loss and how my stomach muscles were finally visible. Despite their observations, I personally believed that I still appeared healthy. However, a blood test revealed that I had anemia. Moreover, as a side effect of taking iron tablets prescribed by my doctor, I began experiencing stomach pain. It took a minor act of rebellion, even if it meant more time in the punishment cells, for the doctor to reluctantly admit they were unsure of what else to do and referred me to New Changi Hospital. During an interview with David Frost for the BBC, Nick openly acknowledges that he will never receive applause for his contributions to banking. He is well aware that being labeled as a “Rogue Trader” will haunt him throughout his entire life.

However, despite not having any support from gentle nursing, soothing surroundings, friends, family, flowers, or tic, Nick deserves credit as a master of endurance. Coping with cancer is already difficult enough, but he had to endure being chained to a bed without anything to read. Whenever he needed to use the bathroom, he had to rely on slow-responding armed guards. Surgery was scheduled for August 11th, and just ten days later, he found himself back in his cell. He had to sleep on concrete and struggle to sit up after having 38 staples removed from his lengthy incision. Furthermore, his stomach muscles had been severed during the surgery.

Despite Nick being informed that there was a 60 per cent probability of him living for five more years, his surgeon was regarded as one of the top specialists in Singapore and his oncologist had received education at Cornell University in New York and had reportedly cared for President Lee Kuan Yu. Nick was assured that undergoing chemotherapy would raise his chances of survival by an additional 10 per cent. The chemotherapy treatment lasted for six months, consisting of five days on and three weeks off. Although Nick had been cautioned that he might experience severe sickness, he managed to handle it quite well.

Finally released in the summer of 1999, despite returning to the UK and finding himself homeless and jobless, Nick had a fairly indulgent first year. He spent time with friends and family and continued his cancer treatment. Against medical advice, Nick ran the 2000 Marathon with the goal of raising money for both Colon Cancer Concern and the Linda Jackson MacMillan Centre, where his father receives treatment for myeloma in Middlesex.

Nick Leeson has demonstrated his ability to bounce back and take advantage of his past encounters. He received a significant payment for having his book serialized in The Mail newspaper. The book was later adapted into a film called Rogue Trader, featuring actors Ewan McGregor and Anna Friel (with Sir David Frost as the Executive Producer). In 2001, he attended Middlesex University to pursue a degree in Psychology. Currently, Nick devotes most of his time to delivering speeches on Risk Management to companies and engaging in after-dinner and conference speaking engagements that draw upon his remarkable life experiences.

In 2005, Galway United FC appointed Nick as their Commercial Manager. In that same year, his book titled “Back from the Brink, Coping with Stress” was published by Virgin Books. Nick has a psychology degree and is married to Irish beautician Leona Tormay. Leona has two children of her own, Kersty (8) and Alex (4). In 2004, they were overjoyed when Leona gave birth to a baby boy after trying for a baby.

Nick comments; “I am of the belief that cancer should not dominate and govern one’s life. I truly believe that maintaining a positive mindset increases the likelihood of survival.” He advises others not to suppress stress as he once did: “You must communicate and articulate your emotions, as I now do with Leona. We humans have an incredible ability to adapt, and as long as you maintain a resilient mindset, you will be able to handle cancer, as well as other challenges.”

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Nick Leeson and Barings Bank Incident Analysis. (2018, Jun 10). Retrieved from

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