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On February 27th, 1995 a piece of news toured the world and blew up the financial community. Barings Bank – the oldest in the world, founded way back in 1763, was forced to declare bankruptcy. It was wiped out by a single man named Nick Leeson, the director of the branch in Singapore. Who is this Nick and how he managed in less than two years to lose 850 million pounds?

Mr. Leeson was born in Watford, England in a family of a plasterer and a housewife. He graduated from high school at eighteen and applied for a job in Kuuts Bank. He was selected among 300 candidates and for two years he was engaged in spreading and sorting of checks. His active nature did not feel comfortable and moved to Morgan Stanley. There he got 20,000 pounds per year – a decent income for a bank clerk. But Nick’s hot blood kept bothering him; he was ready to work for lower wages just to be with the dealers, where the real big money is. A vacancy for “runner” was opened, i.e. apprentice, who carries the orders of traders. The head of the department where he worked said "no" and Leeson left.

The next stop was Barings, but in nine months time in the London office, the red dealer’s jacket was still far away and Nick realized that his chance was in Asia – a dynamic and fast growing market with great prospects. He arranged his movement in Indonesia, where he did a good job for Barings, managing in less than a year to fix mulled share payments to the bank for 90 million pounds. This was highly appreciated and in 1992, Nick Leeson arrived in Singapore as head of the dealers. At the beginning the work went well, the volume of transactions in futures and bonds sharply increased, profits were also increased and everyone was happy.
 
фючерсни контрактиThe policy of Barings is to maximize profits with a minimum cost, i.e. shortage of quality staff. In the "madness" of trading floor/stock in dozens of dealers made transactions, shouting one over the other, making signs and talking on two phones simultaneously. Mistakes happen and exactly such a trifle marked the beginning of the end of Barings. New and inexperienced woman dealer from the Leeson’s Department made a mistake for 20 000 pounds. Nick had to decide whether to declare it or to do something else. Therefore he created the "devilish" error account 88888, which temporarily solved the problem. But other mistakes also happened, and once the wheel was spun there was no return. Nick embarked on risky deals to cover the shortages by selling options on futures contracts of Nikkei 225 – the Japanese stock index. At the beginning revenues from premiums on the options improved the situation and Leeson managed to cover a loss of 6 million pounds, but then the situation worsened and at the end of 1993 the loss was 23 million pounds. According to the accounts skillfully manipulated by Leeson, Barings actually made a profit of 10 million pounds. The bosses in London were pleased, premiums increased, and Nick was the new star of the bank. In the next year the landing in deep water was bigger; in an effort to pay off the losses the dealer made more and more insane transactions the real results of which lay in account 88888. Officially reported were the phenomenal profits of 23 million pounds, in fact, Leeson had had a loss of 150 million.

Auditors arrived, checked the documents and concluded that everything was accurate. Still Barings could have been saved, but the bank bosses’ lack of control and competence predetermined things. In February, Nick made the last desperate attempts to cover the losses by making major transactions, but the market was against him, the losses reached 850 million pounds and the game ended. Barings was bought for 1 dollar by ING Bank and Leeson was sentenced to 6,5 years of imprisonment. There he wrote his book "The Rogue Trader", which brought him 5 million pounds of copyrights. Now he is free and spends his money as he wants. See more in Courses

 
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