What Nick Leeson Contribute to the Fall of Barings Bank?
Nick Leeson Contribute to the Fall of Barings Bank
Nick Leeson Contribute to the Fall of Barings Bank Leeson bankrupted Barings Bank, the UK’s oldest commercial bank, in 1995. After launching a Futures and Options office in Singapore, Leeson became a rogue trader, losing $1 billion of Baring’s cash (SGX).
Main Points
- Nick Leeson bankrupted Barings Bank, the UK’s oldest commercial bank.
- Leeson started conducting unlawful trades after arriving to Singapore in 1992 to execute and settle transactions on the Singapore Exchange (SGX).
- Leeson was intended to manage a cash-neutral company, but he used the bank’s money to make market wagers to recover trading losses.
- Leeson’s losses were £827 million, double Barings’ trading capital, and the bank declared bankruptcy in 1995.
Nick Leeson and the Fall of Barings Banks
28-year-old Leeson started at Barings. Initial speculative transactions made Barings large gains. Leeson started making unlawful trades after going to Singapore to trade on the SGX. These hazardous investments initially earned the bank £10 million, or 10% of 1992’s yearly earnings.
Leeson traded Nikkei 225 Stock Average futures for his customers. Leeson should have been cash-neutral. Managing a portfolio without adding money is this technique. Leeson’s customers kept any profits or losses from trading.
Barings’ sole payout for the deals should have been a commission, and only a tiny percentage were intended to be proprietary. Leeson used the bank’s money to make market wagers to recover trading losses.
Because Barings gave him the obligation of double-checking his own deals, he could conceal his losses in a hidden account. Leeson took higher risks to reclaim lost money. Leeson’s secret account lost £23 million by late 1993. By 1994, it was £208 million.
On January 16, 1995, Leeson bet that the Singapore and Tokyo stock markets would stay flat overnight, neither rising nor falling significantly.
Normally, Leeson’s viewpoint would be conservative. On January 17, 1995, a Kobe, Japan earthquake sank Asian markets.
Leeson tried to offset his losses with hazardous transactions based on the Nikkei’s comeback. In 1995, Leeson fled Singapore. His losses were £827m ($1.4b), double Barings’ trading capital.
Barings went bankrupt on February 26, 1995, following Leeson’s arrest in Germany. Leeson was charged with fraud for deceiving his supervisors about his risky actions and losses.
He got 6.5 years in Singapore. Leeson authored “Rogue Trader” in jail. Ewan McGregor and Anna Friel starred in a 1999 film based on Leeson’s novel.
Leeson had the greatest uncontrolled trading losses till 2008. Jerome Kerviel, a rogue trader at Société Générale, lost $7 billion in 2008 by making unapproved and misleading transactions.
