Nick Leeson and the Fall of Barings Bank

On February 26, 1995, a young trader named Nick Leeson single-handedly brought about the collapse of one of the oldest and most revered banking institutions in the world, the 233-year old Barings Bank in London.

 

Founded in 1762, Barings Bank had a long and rich history transacting business with governments and British royalty. The seeds of its sudden demise were sown 227 years later, in 1989, with the hiring of Nick Leeson, a little-known junior operations assistant from Morgan Stanley.

 

Here’s a quick timeline of events outlining the six-year period of Barings’ accelerated tailspin.

 

1989

Nick Leeson, a private bank clerk with Coutts & Company who then spent two years with Morgan Stanley as an operations assistant, joins the Barings Bank settlements department in London.

 

1990

Barings Bank dispatches Leeson to Jakarta, Indonesia. His first assignment is to sort through a huge mess of “unsettled” back-office contracts worth around £100 million.

 

1991

Leeson successfully completes his task.  He is soon recalled to London to take on a derivatives trading fraud investigation, which he also completes with success. Both accomplishments gain him favor and recognition among the upper echelons of Barings management.

 

1992

February – Having applied for a trading license with the City of London, Leeson’s application is denied due to a separate court case that was yet outstanding. Undeterred, and with Barings support, Leeson passes his trading exam abroad, in Singapore.

 

April – Leeson is assigned to Barings Futures Singapore (BFS). His assignment is to oversee back-office derivatives operations at the Singapore International Monetary Exchange (SIMEX).

 

July – Leeson calls for the creation of an “error account” at SIMEX to report trading losses of junior traders. This is the soon-to-be infamous Account 88888. Leeson decides to use this account for his own purposes, excluding it from general reporting procedures.

 

September – Having passed the SIMEX trading exam, Leeson now has the credentials to trade on the exchange floor. He begins placing large trades on Nikkei futures, all of which are unauthorized. By the end of the month, Account 88888 has accumulated a loss of £6 million.

 

December – Leeson reports £10 million in profits to Barings. The bank rewards him with a £150,000 bonus on top of his £50,000 annual salary. In reality, Barings has a loss of £2 million concealed in Account 88888.

 

1993

Leeson is promoted as the head of trades in Barings Singapore, a position that gives him principal responsibility over all of Barings’ Singapore trading operations, including his own. Leeson’s new position makes it easier for him to conceal his own trading losses.

 

1994

July – Leeson continues racking up trading losses on the Nikkei. He attempts to recoup his losses by trading larger positions. All his attempts are unsuccessful.

 

Toward the end of the summer, Barings conducts an internal audit. They begin to realize the potential risk of having Leeson supervise not only the Singapore division’s trading operations but also his own. Nevertheless, they decide to keep things as they are, choosing instead to trust Leeson’s judgement.

 

December – Nick Leeson provides Barings with a report showing a massive trading profit. In  reality, Account 88888 conceals a loss of £208 million.

 

1995

January – A Barings audit exposes a suspicious discrepancy in Leeson’s accounting. He fabricates a story, placing blame on a trade brokered between two clients, and producing a payment receipt to support his claim. At this point, Leeson decides to go “all-in” in an attempt to reverse all of his losses.

 

On January 16, Leeson “bets the farm” that the Nikkei will not sink below 19,000 points. The next morning, the Great Hanshin Earthquake hits Kobe, Japan. The Nikkei goes into a tailspin. Leeson loses £862 million, a figure that will soon grow to £1 billion.

 

February – Leeson flees to Kuala Lumpur with his wife. Barings, in the meantime, discovers Account 88888, along with the massive losses for which it is liable. Barings makes several bailout attempts, all of which are unsuccessful.

Three days later, on February 26, Barings Bank closes its doors.

 

March – Dutch multinational bank, ING, acquires Barings Bank for £1 (“one” British Pound) assuming all of Barings’ liabilities. Leeson is discovered and arrested in Frankfurt. Later that month, he is sentenced to a 6-year prison term for forgery and fraud.

 

Nick Leeson has since written his autobiography, Rogue Trader, and become something of a celebrity.  His original Singapore exchange trading jacket sold for £21,000 on ebay.  He works as a guest lecturer at the University of Ireland and has appeared on Celebrity Apprentice Ireland.

 

It makes you wonder…all’s well that ends well?


There is a substantial risk of loss in trading futures, options and forex. Past performance is not necessarily indicative of future results.