Nick Leeson

Nick Leeson was born in Watford, Hertfordshire and attended Parmiter's School in nearby Garston. Born to working-class parents on a council estate, his father was a self-employed plasterer, his mother a nurse. After finishing sixth form in 1985 with six O Levels and two A level passes in English Literature and History with C and D grades respectively (failing his third subject, Mathematics),[3][4] Leeson was hired as a clerk with the Lombard Street branch of the Coutts private bank.[5] There, Leeson was settling paper cheques, crediting and debiting client accounts.[6]

In 1987, Leeson moved to Morgan Stanley's Futures and Options back office, clearing and settling listed derivatives transactions. With few prospects for a front office role, Leeson joined Barings Bank two years later, on a salary of £12,000 a year. With four other settlement specialists, he was briefly seconded to Hong Kong to troubleshoot Barings' back office in the Indonesian capital of Jakarta. Leeson returned to London in September 1991 to investigate a case of fraud between a client and a Barings employee. The employee had used the client's account to trade on a proprietary basis until margin calls from the clearinghouses unraveled the scheme.[7]

In April 1992, Barings decided to open a Future and Options office in Singapore, executing and clearing transactions on the Singapore International Monetary Exchange (SIMEX).[8] Barings had held a seat on SIMEX for some time, but did not activate it until Leeson, appointed general manager, was sent over to head both front office and back office operations. Prior to leaving, Leeson was denied a broker's licence in the UK because of committing fraud on his application.[9] He had failed to report a judgment against him entered by the National Westminster Bank. Neither Leeson nor Barings disclosed this denial when he applied for his licence in Singapore.[10]

From 1992, Leeson made unauthorised speculative trades that at first made large profits for Barings: £10 million, which accounted for 10% of Barings' annual profit.[11] He earned a bonus of £130,000 on his salary of £50,000 for that year. Leeson's luck soon went sour and he used one of Barings' error accounts (accounts used to correct mistakes made in trading) to hide his losses.[12][13] He says that this account was first used to hide an error made by one of his colleagues. She had been assigned to buy twenty futures contracts for Fuji Bank, but had sold them instead, costing Barings £20,000.[14][15][16]

However, Leeson used this error account to cover further bad trades by himself and others. For example, he used it to cover a number of mistakes made by one of his traders who frequently came to work after long nights of partying. Leeson believes that he first crossed into out-and-out criminal conduct when he forgot to reconcile a discrepancy of 500 contracts, costing Barings US$1.7 million. He concluded that the only way to hide such a massive error and keep his job was to hide it in the error account.[16] Leeson insists that he never used the account for his own gain, but in 1996 The New York Times quoted "British press reports" as saying that investigators had located approximately $35 million in various bank accounts tied to him.[8] Management at Barings also allowed Leeson to remain general manager and chief trader while also being responsible for settling his trades. In the latter role, he was responsible for ensuring accurate accounting for the trading operation. These jobs were usually held by two different people, and allowing Leeson to do both made it much simpler for him to hide his losses from his superiors in Singapore and London.

By the end of 1992, the error account's losses exceeded £2 million, increasing to £23 million in late 1993. This amount ballooned to £208 million by the end of 1994.[17] Leeson had followed a "doubling" strategy: every time he lost money, he would bet double the amount that was lost in order to recoup the amount. This had been successful for him in the past, including once in 1993 where he was able to cover a £6 million negative balance in the error account and after which he vowed not to use the account again. However, Leeson had to maintain his reputation as a trading genius and soon found himself hiding his losses there again. As the losses grew higher and higher, Leeson fabricated cover stories to explain why he needed more cash from London. His sterling reputation protected him from close scrutiny.[18]

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.[17]

Leeson left a note reading, "I'm sorry" and fled Singapore on 23 February. Losses eventually reached £827 million (US$1.4 billion), twice Barings' available trading capital. After a failed bailout attempt, Barings, which had been the UK's oldest merchant bank, was declared insolvent on 26 February.[19] After fleeing to Malaysia, Thailand and finally Germany, Leeson was arrested in Frankfurt and extradited back to Singapore on 20 November 1995,[20] though his wife Lisa was allowed to return to England. While he had authorisation for the 16 January short straddle, Leeson was charged with fraud for deceiving his superiors about the riskiness of his activities and the scale of his losses. Although Leeson committed continuous and large-scale fraud over the years, Barings were responsible for the deficient internal auditing and risk management practices which allowed the fraud to continue and multiply.

Leeson pleaded guilty to two counts of "deceiving the bank's auditors and of cheating the Singapore exchange",[2] including forging documents.[21] He was sentenced to six and a half years in Changi Prison in Singapore, he was released in July 1999 after serving at least two-thirds of his sentence (4 years and 4 months) for good behaviour, and having been diagnosed with colon cancer, which he survived despite grim forecasts at the time. 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."[8] 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.[22]

On 5 April 2007, The Guardian reported that KPMG, the liquidators of Barings, had sold a trading jacket thought to have been worn by Leeson while trading on SIMEX in Singapore. The jacket was offered for sale on eBay but it failed to reach its reserve price despite a highest bid of £16,100. It was subsequently sold for £21,000.[32] In October 2007 a similar jacket used by Leeson's team but not thought to have been worn by Leeson himself sold at auction for £4,000.[33]

• Leeson, Nick; Whitley, Edward (March 1996). Rogue Trader: How I Brought Down Barings Bank and Shook the Financial World. ISBN 0-316-51856-5.
• Leeson, Nick; Tyrrell, Ivan (July 2005). Back from the Brink: Coping with Stress. ISBN 0-7535-1075-8.

• Clarence Hatry
• Speculation in financial markets
• List of trading losses
• Jérôme Kerviel
• Kweku Adoboli
• Toshihide Iguchi
• Galway United
• CITIC Group
• White collar crime

• Official website
• Nick Leeson at IMDb
• "Nick Leeson". The Guardian. 19 September 2008.
• Works by or about Nick Leeson in libraries (WorldCat catalog)
• Malcolm Borthwick (23 February 2005). "Leeson's legacy lives on in Singapore". BBC News.
• "Business: The Economy How Leeson broke the bank". BBC News. 22 June 1999.
• "Galway United Football Club".
• Adeline Loh. "Singapore's Most Famous Convicts – Bank Bust". Archived from the original on 3 March 2016.