Nicholas Leeson

In the 1990’s there was little events that roiled the world so much as the collapse of British bank Barings in late February 1995. Most shocked that the bank, whose history 233 years and who trusted their money by representatives of the aristocracy and the royal family, was struck by the overt and covert speculation only one man – 28-year-old trader Nicholas Leeson (Nicholas Leeson). His self-confidence and passion to take risks, as well as greed and stupidity of his bosses, who, admiring the “transcendental” profits through his fingers looking at fraud subordinate, deprived the bank of 850 million pounds overnight ruining investment empire, whose strength seemed unshakable.

History of the collapse of Barings is extremely instructive, because it is not only “the quintessence of morality” of modern financial markets, but also a clear picture of how to dire consequences could result inefficient management of financial risks. In 1996, while in prison on charges of forgery and deception, Leeson has published an autobiographical book “Rogue Trader” ( “roguish trader”), which fully and frankly told of his deeds. Without trying to absolve themselves of blame, he said (and this with him were very many experts agree) that the things done to them was only possible because of the very imperfect methods of auditing and risk management practiced in the bank, not to mention the condoned by superiors and colleagues . Ethical behavior in the Barings, the confirmation of Nick Leeson, was simple: “We all were forced to make profit, profit, more profit …” no coincidence that in his review of “Rogue Trader”, published in the financial newspaper column “New York Times” pointed out that “This is a grim book, written by a young man is extremely busy, but it should be read by all bank managers and auditors.”

Nick Leeson was a rising star in the bank, but ambition led him too far, and instead of the glory of the financial genius, he got only a world famous big, but very unlucky rogue. “Unfortunately, until the day of his death, I will always be known as a roguish trader – said of himself once Nick Leeson. – This title, from which I can not escape, I never know how to change it. I reconciled and just live with it. ”

Getting life’s journey of Nick Leeson recalls the classic fairy tale on the theme “from rags to riches” – about a poor young man suddenly reached the summits of wealth and honor. He was born Feb. 25, 1967 in the small town of Watford, which is located north-west London, in a poor working family. His father, William (William) was a plasterer and wanted his son to become civil engineers. However, in high school Parmiter’s School, where he studied for Nick, teachers found it very weak mathematical abilities. He failed his final examination in mathematics and left the school, receiving only some evidence. In 1982, Leeson settled a clerk in the royal bank Coutts, after which he worked in minor positions in other banks, including Morgan Stanley. In July 1989 he was hired in the Barings Bank – the oldest of the banks in the UK, founded in 1762 and enjoyed an impeccable reputation. Among its clients belonged to Queen herself.

Starting work as a clerk, Nick Leeson quickly made a favorable impression on management. Soon he was asked to relocate to South East Asia, has received approval and went to Hong Kong, where he was charged to the special problems associated with the view of banking operations, headed a team of four staff members. Then he was transferred to Jakarta, where he met his future wife, Lisa, an employee of the local units of Barings Securities. The successes of Nick Leeson in Jakarta, where he spent 10 months We also managed to mount challenges in the back office of Gdańsk branch were appreciated, and in 1992 he was appointed to the Singapore branch of Baring Securities, on the newly created position of manager of operations with derivatives on Singapore International Monetary Exchange (Singapore International Monetary Exchange, SIMEX). In this capacity, he was not supposed to engage in trading, but soon, having passed the appropriate exam, he became the lead trading on SIMEX, led a small team of traders. In addition, he is de facto head of the back office of the Singapore branch, due to its large experience in this field. Thus, Barings executives from the outset made the fatal mistake of letting Nick Leeson combine the chief trader and head of back office, which must be separated, as back-office accounting and provides independent validation of transactions.

Nick Leeson and his team have the authority to conduct two types of transactions: transactions with futures and options on behalf of clients or other units of Barings, as well as arbitrage on the difference in prices between the futures contracts on the leading Japanese Nikkei 225 index, traded on the SIMEX and the Stock Exchange in the Japanese city Osaka. In theory, arbitrage operations are considered risk-free, in practice it is not, but compared with other strategies of the low level of inherent risk. It may also have contributed to the fact that the top managers of the bank were not too concerned blatant conflict of interest, which takes place in the above-described combination of posts. Thanks to Nick Leeson instinct that allowed him to correctly predict the future direction of the Nikkei, Barings soon began to receive from the Singapore branch of multimillion-dollar profits. At the end of 1993, he earned more than £ 10 million, representing approximately 10% of the total annual profit of the bank. London bosses Leeson jubilant, seeing the river flowing into bank profits, and completely trusted the “miracle-trader.

It seemed that Nick Leeson and his wife Lisa have everything that one could wish: a high salary and bonuses, nice apartment, weekends in exotic places, frequent parties and entertainment. And, moreover, the couple seemed to be head over heels in love with each other. However, in his spare time Leeson often drawn the attention of an excessive predilection for the “green snake, and sometimes hooligan antics. Once he even spent the night in sobering-up station and was sentenced to a fine for immoral actions, once in the bar showed around mooning.

Nick Leeson, obviously, seemed top Barings managers absolutely infallible. Management Barings believed carried out by Leeson safe operation, especially as he himself claimed that following the orders of clients and has made provision for margin accounts on their behalf. The company did not know that he almost from the very beginning of its activities as a trader conducted unauthorized trades and, most worryingly, these trades are too often been unprofitable. Nick Leeson used a special “through error” (Error Account) under the number 88888 (the number is considered very lucky in Chinese numerology), which concealed its losses. As later stated Leeson, initially, this account has been opened in order to conceal the mistake made by an inexperienced member of his team and led to losses of $ 20 thousand pounds sterling. Later, however, Leeson began to use the account 88888 to conceal their own losses, which grew like a snowball.

By the end of 1992 losses hidden on the “happy” after all, more than 2 million pounds sterling, and by December 1994 this figure was 208 million pounds. Nick Leeson requested and received additional funds from the bank to continue trading. Trying to get out of becoming a hopeless situation, he became more and more entangled. Its main stake was made of the fact that the Nikkei index drops below 19,000 points. At the moment such a decision seemed reasonable, since the Japanese economy is just going through the process of recovery after 30-month recession. But suddenly everything went to pot.

January 16, 1995 Nick Leeson made the deal, which marked the beginning of the end for himself and for the entire bank Barings. He sold streddl (simultaneous sale of put option “and” call “with the same prices and deadlines in order to profit in a” lateral “trend), hoping that the Japanese market until the next working day will not undergo major changes. But on Jan. 17, 1995 at 5:46 am earthquake measuring 7.2 on the Richter scale destroyed a considerable part of the Japanese city of Kobe and claimed the lives of about 6.5 thousand of its inhabitants. It was the most powerful earthquake in Japan since 1923. As a result, the previously weak wavered Nikkei index during the week fell by 7%. Losses Leeson only on the day of the earthquake amounted to more than 55 million pounds, and the total amount of loss zashkalil “for 400 million pounds.

Feeling that the ground is burning under his feet, Nick Leeson tried to prevent a collapse with more and more reckless and risky transactions. He massively bought futures contracts on the Nikkei index in the calculation to increase their prices. Hope Leeson built on the fact that the recession caused by the earthquake, followed by the restoration of the market, and the Nikkei will be able to re-stabilize at the level of 19000 points. For three months, Leeson had bought more than 20 thousand futures in a vain attempt to put pressure on the market. He did not hedge positions and took no other precautions to protect your home from the bank to huge risk to which he was subjected. However reconstruction, he did not wait. It was later discovered that buying futures was the cause of about three quarters of losses of Barings.

Bosses Leeson, agitated after receiving requests from him to obtain additional funds, in February 1995, conducted a sample audit. As a result, the losses have come to light reaching the astronomical sum of 827 million pounds sterling (approximately $ 1.4 billion in accordance with the then exchange rates), which almost doubled in excess of the bank’s own capital. Staff, audit and only had to notify senior management of Barings that the bank actually ruined.

Nick Leeson, realizing that the secret is about to become clear, I decided to go into hiding. Two days before his 28 birthday, he disappeared from Singapore, leaving on your desktop hastily scratched a note, which said only “Excuse me” ( “I’m Sorry”). Only then did his colleagues began to understand what had caused vomiting, Leeson began a week before the flight. Trader suspected that he faces a prison sentence for fraud, and preferred to be jailed in Britain, but not in Southeast Asia, where the attitude to criminals is a far more rigid.

Initially, he went with his wife in Malaysia, which celebrated his birthday at one of the fashionable resorts of the island of Borneo. On the scandal erupted, he learned from the media. Malaysian wife went through Brunei in Frankfurt. At this time, photographs Leeson had already appeared on the front pages of all newspapers, and he was wanted by international police with more zeal than any other criminal in the world. When he signed up at the airport under its own name, his face covered with a baseball cap, the authorities in Germany were immediately alerted. No sooner had Nick Leeson and his wife get off the plane, as they were welcomed by representatives of the police.

The arrest of a trader-swindler has caused the rise in global futures markets. However, the 233-year-old bank Barings, the anvil and the bastion of the British financial establishment, nothing could help. Investors, including Her Majesty the Queen, lost their investments, about 1200 employees – their jobs. The Bank itself was bought by the Dutch financial and insurance giant ING, has taken the its obligations for the symbolic sum of 1 pound sterling, and ceased to exist as a separate company.

Who was to blame for the crash occurred? Nick Leeson – no doubt. He pleaded guilty in that falsifying documents and misleading as a bank and exchange SIMEX. However, when the excitement subsided, caused by the collapse of Barrings, sounded the famous Watergate question the process: that the president knew and when he knew it? While the illegality of the actions Leeson no doubt, could the top managers of the bank to be in the dark about his fraudulent tricks? Bank of England in its report concluded that the dashing speculator acted alone, managing to fooling his superiors until the moment when the bank rescue was already too late. An indisputable fact is that most of the “old school” in the Bank’s leadership has never really analyzed and did not try to understand the intricacies and snag such a complicated areas, such as derivatives trading. On the other hand, the huge profits from arbitrage futures meant for employees of Barings big prize for the year, and therefore they did not want to ask about where you come from such high numbers.

Barings failed to completely avoid accusations of his involvement in the accident. As it turned out, a memo on an internal nature, dating from 1993 and aimed at the headquarters of the bank in London, contained a warning about the dangers associated with the fact that Leeson is allowed to simultaneously engage in trading and manage the back office. The note said: “We are under the threat of a system that will destroy us.” However, the leadership has taken no action. In January 1995, just before the disaster, the Exchange SIMEX expressed its concern regarding the activities of Leeson, but the warning remained without consequences. The bank still has translated his trader $ 1 billion to continue bidding. In a report on the collapse of Barings, prepared by the Singaporean authorities, it was distrust of claims bosses Leeson, who were all forced to resign, that they were unaware of the existence of “an account of errors” 88888.

But back to Nick Leeson, which fortune, until so extraordinarily fond of him, so suddenly turned away. After his arrest in Germany he spent several months has made every effort to avoid extradition to Singapore, but he failed. In December 1995 the Singapore court sentenced him to six and a half years’ imprisonment with confiscation of property for the benefit of creditors of the bankrupt bank. C given that Leeson was almost nine months in detention in Germany awaiting extradition, the countdown time was conducted from March 2, 1995. Nick Leeson was convicted on two counts: to mislead auditors and bank fraud Exchange SIMEX. The punishment was not as severe as might be expected, since the court decided that the defendant had acted unintentionally. Sam trader claimed that he never used the unauthorized trades for their own benefit, although the bank’s lawyers discovered approximately $ 35 million in various accounts and events pertaining to Leeson.

Life of Nick Leeson, seemed to reflect the ups and downs in his career. His wife Lisa took a job as a stewardess to be able to make regular visits to her husband. She even helped him write the book “roguish trader”, published in 1996 (incidentally, the fee for it was fully listed creditors Barings). At first glance, their marriage survived the blow struck by the sudden separation and the transition from the “beautiful life” to the plight. But what Lisa could not accept, so it is with the revelations of her husband about his infidelities with geishas. The loss of once so devoted and loving wife, who divorced him and later remarried – and again at the Trader of the City of London – are extremely difficult acted on Leeson, intensified his sense of hopelessness. He later recalled that the worst time – even worse than the period when he struggled with cancer – have been for him for seven months from March to October 1996, when stopped visiting the Lisa and dried up the flow of letters, previously accounted for almost a daily basis. Relationships with Lisa Leeson were the mainstay of his prison life – until, he says, he suddenly ceased to understand what is happening between them. In the end, Nick Leeson has written to his wife, suggesting a divorce, and two weeks later she agreed.

Several months later, Nick was raised a terrible diagnosis: cancer of the colon. That is, the disease destroyed his mother when he was only twenty. By the way, my dad had myeloma, is diagnosed after a sick son. Disease has led to that of a young playboy and a frequenter of parties to absorb the huge amount of alcohol, Leeson has become almost in his own shadow.

Prison in Singapore is not very conducive to stability of the immune system. Together with two other criminals Nick Leeson for 23 hours a day, was confined in a small cell. His “fellow sufferers” belonged to rival gangs, and when there were fights between them, it was impossible to avoid. People have to sleep on the bare concrete floor.

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