Nick Leeson jailed for Barings Bank Collapse
The 2nd of December 1995 AD
Barings Bank was Britain's oldest investment bank, an institution in the City , with royal customers and connections ( Diana Princess of Wales was a descendent of one of the Baring family). It was brought to its collapse by Nick Leeson in February 1995 , though his rogue trading seemingly began some time previously.
In what can seem a forewarning of certain alleged situations in present times, Leeson in his role as a derivatives trader in Singapore seemed to be making profits that were too good to be true, with nobody rocking the boat to sound the reality of the situation. At one point he alone was responsible for 10 per cent of the bank's profits. But he was in fact responsible for massive, but hidden, losses.
Barings failed to put in place monitoring systems that could have caught the problem sooner - in essence Leeson monitored his own trades, filling two roles in the Singapore trading office: trading floor manager; and head settlement officer. Auditing failed to find the true situation. Leeson hid his losses in an account numbered 88888, set up originally to cover a small loss made by a colleague, according to Leeson, a surprisingly simple and effective ruse.
Leeson's trading losses went from bad to worse and he became increasingly desperate to recover the situation. When he finally fled the losses amounted to over £800 million. Barings was in effect bust, the losses being more than twice its trading capital. An emergency rescue plan flopped, and the bank was humiliatingly sold for £1 to Dutch bank IMG.
Leeson fled to Thailand, Malaysia and Germany, where he was discovered, and eventually extradited to Singapore. In Singapore he was sentenced to six and a half years in Changi Prison for his activities.
A line from the official British report into what happened at Barings‚ bears repeating: "Management teams have a duty to understand fully the businesses they manage", a statement of the obvious if ever there was one.
Those words should have been a warning to the financial world. Barings' Bank was one of the most august establishments in British finance, but failed in embarrassing fashion. Given events in the dot-com bubble and the credit crunch, we have to wonder to what extent the warning was heeded.
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