Nick Leeson : The Spectacular Collapse of Barings Bank

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Nicholas William “Nick” Leeson, aka Nick Leeson, born 25 February 1967, is a former derivatives broker whose fraudulent, unauthorized speculative trading caused the spectacular collapse of Barings Bank, the United Kingdom’s oldest merchant bank, for which he was sentenced to prison.

Since 1999 he became, and subsequently resigned as, the CEO of League of Ireland club Galway United, and has now partnered with an eLearning educator named Bizintra, mentoring new and experienced traders in avoiding the common pitfalls of trading the financial markets.  He is also active on the keynote and after-dinner speaking circuit where he advises companies about risk and corporate responsibility.

Nick Leeson was born in Watford, where he attended Parmiter’s School. After finishing school in 1985 his first job was as a clerk with a private bank, Coutts. He then moved to Morgan Stanley in 1987 for two years, and then to Barings in 1989.

By the end of 1992, the account’s losses exceeded £2 million, which ballooned to £208 million by the end of 1994.

The beginning of the end occurred on 16 January 1995, when Leeson placed a short straddle in the Singapore and Tokyo stock exchanges, essentially betting that the Japanese stock market would not move significantly overnight. However, the Kobe earthquake hit early in the morning on 17 January, sending Asian markets, and Leeson’s trading positions, into a tailspin. Leeson attempted to recoup his losses by making a series of increasingly risky new trades (using a long-long future arbitrage), this time betting that the Nikkei Stock Average would make a rapid recovery. However, the recovery failed to materialise.

Nick Leeson left a note reading “I’m Sorry” and fled Singapore on 23 February. Losses eventually reached £827 million (US$1.4 billion), twice the bank’s available trading capital. After a failed bailout attempt, Barings was declared insolvent on 26 February.

After fleeing to Malaysia, Thailand, and finally Germany, Leeson was arrested in Frankfurt and extradited back to Singapore on 20 November 1995, though his wife Lisa was allowed to return to England. While he had authorization for the 16 January short straddle, he was charged with fraud for deceiving his superiors about the riskiness of his activities and the scale of his losses. Several observers have placed much of the blame on the bank’s own deficient internal auditing and risk management practices. Indeed, the Singapore authorities’ report on the collapse was scathingly critical of Barings management, claiming that senior officials knew or should have known about the “five eights” account.

Nick Leeson pleaded guilty to two counts of “deceiving the bank’s auditors and of cheating the Singapore exchange”, including forging documents.[11] Sentenced to six and a half years in Changi Prison in Singapore, he was released from prison in 1999, having been diagnosed with colon cancer, which he survived despite grim forecasts at the time.

While in prison, in 1996, Leeson published an autobiography, Rogue Trader, detailing his acts. A review in the financial columns of the New York Times stated, “This is a dreary book, written by a young man very taken with himself, but it ought to be read by banking managers and auditors everywhere.” In 1999, the book was made into a film of the same name starring Ewan McGregor and Anna Friel.

The events also form the subject matter of a 1996 television documentary made by Adam Curtis, titled Inside Story Special: £830,000,000 – Nick Leeson and the Fall of the House of Barings.

Photo by sk8geek

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