Nick Leeson
Nicholas William Leeson was born in Watford, 25 February 1967 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 2 years, and then to Barings in 1989. Leeson is an English former derivatives broker famous for his time at Barings Bank, the United Kingdom's oldest merchant bank. in 1992, Leeson was appointed as a general manager of a new operation in futures markets on the Singapore International Monetary Exchange (SIMEX). Barings had held a seat on SIMEX for some time, but didn't activate it until Leeson was sent over there. Leeson was sent to Singapore after he was denied a broker's licence in the United Kingdom because of fraud on his application. between Leeson and Barings assured this denial when Leeson applied for his licence in Singapore.
at first, Leeson made several great successful trades that brought the company large profits about £10 million that calculated as the company's 10% annual profit. thanks for his effort, he received extra bonus £130,000 on his salary of £50,000 in the same year for his success. this made his career rising up until Barings entrusted him not only as a chief trader of the company, but also the head of settlements which his responsibility to ensure the company's account. this was the reason why he picked up to work at SIMEX as the company's trusted person, which it was actually a bad idea, the worst nightmare the company would ever achieved.
following by his success, Barings company totally relied on Lesson to manage their funding. this made Lesson has an authorized access to almost all-about the company where he slowly began to lose money from Lesson's speculative trading. in next few months after his excellent trades, Leeson would go on to make poor and unauthorized trades that led to huge losses, but no one was the wiser. Leeson would simply cover his tracks using an error account initially set up to hide a mistake made by an inexperienced team member, who lost the company £20,000. he would then report artificial profits to the bank’s headquarters in London and the British tax authorities.
As time passed by, Leeson had chalked up over £208 million in debt by the end of 1994. if Barings hadn't blindly trusted their “golden boy money-making machine”, the bank might still be operational today. their available trading capital of £350 million would have been enough to cover the losses incurred. unfortunately for the bank, Leeson’s luck soured even further. when an earthquake happened and struck Kobe, Japan, he attempted to recover the losses by betting heavily on the market in purpose of recovering. his gamble failed spectacularly and his losses then snowballed to over £827 million. according to the historical exchange rate between the pound and Singapore dollar at the time, that’s approximately $1.8 billion. here's the chart when the Kobe earthquake in Japan caused Leeson's trades were all cut off into losses.
on January 16th, 1995, with the aim of "recovering" his losses, Leeson placed a short straddle on Singapore Stock Exchange and on Nikkei Stock Exchange, betting that Nikkei would drop below 19 000 points. But the next day, the unexpected earthquake of Kobe shattered his strategy. Nikkei lost 7 % in the week while the Japanese economy seemed on the verge of recovery after 30 weeks of recession. Leeson took a 7 billion dollar value futures position in Japanese equities and interest rates, linked to the variation of Nikkei. he was long on Nikkei. in the 3 days following the earthquake of Kobe, Leeson bought more than 20 000 futures, each worth 180 000 dollars.
again, he tried to recoup his losses by taking even more risky positions, betting that the Nikkei Stock Exchange would make a rapid recovery. he believed that he could move the market but he lost his bet, worsening his losses. they attained an abysmal low as much as 1,4 billion dollars, more than double the bankʼs capital who is now bankrupt because its own capital would be insufficient to absorb the losses generated by Leeson.
by then, Leeson knew the game was up. he sent a confession letter to his boss in London, packed his bags and fled the country with his wife, staying in a slew of luxury hotels while on the run in Malaysia and Thailand. at the same time, administrators were tasked with managing the sudden collapse of Barings. they tried bailing out the bank, but it failed and was ultimately declared insolvent on February 26 th, 1995. that’s it, a young rogue trader born into humble beginnings had single-handedly brought down the curtains of a prestigious, 233-year-old bank. Leeson was eventually caught in Frankfurt, Germany and was brought back to Singapore to face the law despite fighting against extradition. he was subsequently sentenced to 6.5 years jail in Tanah Merah prison.
meanwhile, the fall of Barings caused an unprecedented crisis within the city. 9 senior managers were accused of having badly managed the situation and in March 1995 the bank was bought by Dutch group ING. it was the less than glorious disappearance of a bank founded in the 18th century after 223 years of existence. the bankruptcy of Barings had a world-wide impact, affecting even those who weren't among the financial circles. the public expressed concern about the use of by-products and about the "madness of financial markets" where a young "golden boy" of less than 30 years can cause the demise of financial institutions which nevertheless had experienced a dozen crises during 233 years. in the end, thanks to Leeson's track record and experience, This affair has nevertheless lead to the creation of new jobs such as "compliance officers," has strengthened the role of risk control within investment banks and has created a separation between Front, Middle and Back Office functions.
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