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Nick Leeson bankrupt Barings Bank

Since late 1992, Nick Leeson had been hiding trading losses in an account 88888. On 16 January 1995, Nick Leeson placed a short straddle contract on Nikkei Stock Average in the Singapore and Tokyo stock exchanges, betting there will be minimal movements.

On 17 January 1995, an earthquake strike in Kobe, causing big movements in prices. To recover the losses, he placed new trades (long-long future arbitrage), betting Nikkei Stock Average will recover quickly.

On 23 February 1995, he left a note “I’m Sorry” and fled Singapore . 3 days later, on 26 February 1995, Barings was declared insolvent. The total losses reached £827 million, twice the available bank’s capital. Barings Bank is England’s oldest merchant bank with 233 years of history, with customers like Queen of England.

Nick Lesson pleaded guilty and was sentence to 6.5 years to jail in Singapore. He was released in 1999, diagnosed with colon cancer.

Career
1985 Joined Coutts Private Bank as Clerk
1987 Joined Morgan Stanley
1989 Joined Barings Bank
1992 Appointed General Manager of Futures Markets on Singapore International Monetary Exchange (SIMEX).
1992 Head of Trading and Settlements

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In 1996, he published an autobiography, Rogue Trader, in prison.
In 1999, the movie Rogue Trader was made, starring Ewan McGregor and Anna Friel.


 

Rewind
In 1992, he made unauthorised trades. Profit was reported at £10 million, which accounted for 10% of Barings’ annual profit. His salary was £50,000 and received bonus of £130,000.

He started hiding trading losses in account 88888 when his colleagues made a mistake of selling 20 contracts instead of buying 20 contracts for customer. The trading lost was £20,000. His appointment as head of trading and settlement allow him to continue to hide further trade losses.

The account losses exceed £2 million in late 1992, and to £208 million by the end of 1994. In January 1995, he placed a bet and the 1995 Kobe earthquake caused his bet to spiralled to an eventual loss of £827 million. 8 days later, he fled and Barings Bank collapsed.

The escape
On 23 February 1995, he left a note “I’m Sorry” and fled Singapore to Malaysia, Thailand and was eventually caught in Frankfurt, Germany. On 20 November 1995, 9 months later, he was extradited back to Singapore.

The sentence
He was charged with fraud for deceiving his superiors and the regulator. He pleaded guilty to two counts of “deceiving the bank’s auditors and of cheating the Singapore exchange”,[11] including forging documents.[12] Sentenced to six and a half years in Changi Prison in Singapore

88888 Account
Fake account set up for error trades and hidden losses
The many 8s is because 8 in chinese is aspicious

SIMEX seat
Barings had a unused seat on SIMEX and was activated when Nick Leeson was sent to Singapore. Leeson was denied a broker’s licence in the United Kingdom because of fraud on his application, thus was sent to Singapore.
Both Leeson and Barings did not disclose this when Leeson applied for license in Singapore.


 

History
1762 John and Francis Baring Company was founded
Founded by Baring family of German origin
British oldest bank with 233 years history
1800 John retired and bank was renamed Francis Baring and Co
1804 – 1890 renamed Baring Brothers & Co.

Baring Crisis or Panic of 1980
Led by Edward Baring, Barings bank almost collapsed
1880s they were overexposed to Argentine and Uruguayan debt
1890, Argentine president Miguel Juárez Celman was forced to resign following the Revolución del Parque country was close to defaulting on its debt payments.

Barings lacked sufficient reserves to support the Argentine bonds. Governor of the Bank of England, William Lidderdale, arranged a consortium of banks, headed by former governor Henry Hucks Gibbs and his family firm of Antony Gibbs & Sons, to bail Barings. The resulting turmoil in financial markets became known as the Panic of 1890.

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