NICK LEESON: THE 28-YEAR-OLD TRADER THAT BROUGHT DOWN BARINGS BANK

NICK LEESON

Nick Leeson is one of the most notorious figures associated with Singapore. In the 1990s, while still in his 20s, and working as a securities trader, he "spun a web of deceit" that led to the collapse of Baring's bank, a 232-year-old institution which helped Napoleon and Thomas Jefferson finance the Louisiana Purchase.[Source: Time, March 13, 1995]

Leeson's disastrous trades caused the bank to collapse with $1.4 billion in debts. It was the largest financial loss ever experienced by a single institution. Some people with accounts at the bank lost a good chunk of their life savings. Baring was eventually sold to the Dutch firm ING for $1.60 and the assumptions of Baring's massive debts.

Barings was Britain's oldest merchant bank. Among its customers were the Russian czars, Emperor Napoleon II and Americans Nathaniel Hawthorne and James Monroe. It has been estimated that Barings controlled $100 million of Queen Elizabeth II liquid assets. It is believed that she lost at least $1 million after the collapse but that most of her money was invested in stocks and bonds and protected in a "ring-fence” from actions by traders like Leeson. The Princess of Wales was the great grand daughter of a Baring and Prince Charles' charity to help disadvantaged teenagers was financed with money held in a Barings account.

Books: Rogue Trader by Nick Leeson (1996, Little Brown); Collapse of Barings by Stephen Fay (1996, Richard Cohen)

Nick Leeson’s Early Life

The son of plasterer from the London suburb of Watford, Leeson never went to college but secured a position as a clerk at the age of 18 at the prestigious London bank, Couts and Co. In 1987 he got a job as clerk at Morgan Stanley, an American bank very active in the international financial markets.

Leeson told The Telegraph” We lived on a council estate in Watford. My father was a plasterer and Mum was a nurse and carer. Money was always tight but I never wanted for anything. We had a rented television that took money but always seemed to have enough coins to watch what we liked. My parents were good, honest, working-class people who believed in only spending what you have. It taught me the true value of money. When you forget about this, problems can occur. [Source: Toby Walne, The Telegraph, August 19, 2012 ~~]

In 1989, Leeson was hired by Barings as a back room clerk in charge of making sure all transactions were accounted and paid for. By 1992, he moved up a position to that of an international troubleshooter in which he flew off to financial centers checking allegations of fraud.

On his early jobs, Leeson told The Telegraph: “I had a paper round. I was not an entrepreneur but liked to earn my own money. At school I saw a trainee job advertised with Coutts bank and thought why waste time with university when I could earn some cash straight away? I immediately fell in love with the City. It was the Big Bang era and very exciting. By the age of 22 I had been headhunted by Barings and was after new challenges – which is how I got to be trading in Singapore. ~~

Nick Leeson in Singapore

In 1992, Leeson landed a job helping to set up an office at the Singapore International Monetary Exchange. At first he did the same kind of work he did at London, but because the office was short-staffed he soon landed a position making trades. Leeson showed an aptitude for his work as a trader in Singapore. Shortly after taking his position as a trader he started making millions of dollars for Barings. He reportedly made profits of between $20 and $35 million for Barings in 1994, and shortly before the bank collapse he boasted to a friend he would get a $2 million bonus for the profits he made in addition to his $350,000 a year salary, free apartment and unlimited travel expenses. Thanks largely to Leeson’s work, Barings was declared Trader of the Year on th Singapore Exchange.

In Singapore, Leeson lived in a furnished three-bedroom apartment in a fashionable neighborhood with a live-in maid and his wife, a small attractive woman named Lisa Sims, who had been a clerk to a Barings stockbroker. They enjoyed sports and partying. He was one of only two foreigners on an all Malay soccer team.

Leeson was a regular at Harry's Bar at the Boat Quay, where he a reputation of being a kind of "wildman." Once he was arrested, spent the night in jail and was fined US$140 for mooning a bunch of stewardesses and was banned from the Singapore Cricket Club for getting into a fight over a game of snooker. He also exposed himself on a dance floor and came to work hung over, vomiting, and beat up. His friends were equally bad. One mate introduced himself to women by exposing his genitals. Another got arrested with a prostitute while on a business trip in New York.

How Leeson Gets Into Trouble

Leeson made trades that were similar to a Las Vegas gambler betting on whether a football team would be above or below the point spread on a given game. In July 1992, Leeson said one of his assistants sold short a few stock-market futures for a client who actually wanted to buy. When he go around to correcting the error, the Nikkei had risen, resulting in a loss of $90,000 to the client. Rather than fessing up to his mistake he put the loss into a secret "error account" numbered 88888 and attempted to trade his way out of the loss.

But that didn’t happen. He kept losing more money. By the end of 1992, he had lost $3 million This figure grew to $40 million in 1993. By the at the end of 1994, the same year he was supposedly racking up huge profits for Barings, he had lost $250 million

In his memoirs, aptly titled Rouge Trader, Leeson claimed that he began hiding his losses not to save his own ass but to save the ass of other young inexperienced traders who risked getting fired for their mistakes. He also said he could haven stolen millions in a more conventional way. One his first big overseas trip he was entrusted with millions in cashable stock certificates. "I could have slipped off to South America with a bundle and need never have worked again."

How Leeson Got Into Really Big Trouble

Leeson waged bigger and bigger sums, hoping that that shear value of the trades would force the market up. He gambled in late 1994 and early 1995 on a futures trade that Japan's Nikkei 225 Index would remain above 19,000 on March 10, 1995, under normal circumstances a fairly safe bet. Baring's superiors let him get way without authorizing contracts for hundreds of millions of dollars because they thought he was making the purchases for one of his clients with the client's money.

It appeared that Leeson gamble was fairly safe until the Kobe earthquake of January 17, 1995, when the Nikkei index fell 7 percent and dropped below 19,000. He lost $75 million. Instead of cutting his losses and admitting his mistake, he bought more contracts, gambling that the Nikkei would rise again to 19,000. After a week he lost $150 million more.

Banks sometimes make wagers like the one made by Leeson but they usually hedge their position somewhere else. Leeson didn't do that. By the middle of February it was clear that his gamble was not going to paying off as the Nikkei edged down toward 18,000 and the debts in account no. 88888 exceeding Baring's assets.

How did an established like Baring let a rouge trader like Leeson run up such huge losses? The primary reason is that he was in the unusual position being the bookkeeper of the trades he made and in this position he was able to create false transactions between his secret account and another Baring account.

In 2012, Leeson told the The Telegraph: I make no excuses about what I did – it was wrong and I feel remorse. But I am no crook and was just trying to put things right. It had started when I tried to cover for a junior colleague who lost £20,000 on the trading floor. The bets were not for personal gain. I was given too much freedom to play with too much money – it should not have been allowed. I was not the gambling "barrow boy" portrayed in the media but someone who wanted to stay in control. [Source: Toby Walne, The Telegraph, August 19, 2012]

Leeson Flees Singapore and is Arrested

The week before he fled Singapore, Leeson kept excusing himself from his office to throw up in the bathroom. But his fellow employees didn't know why. At the end of the trading session on February, 23, 1995, Leeson drove a rented Mercedes sedan across the causeway to Malaysia. On his office desk he left a handwritten that said, "I'm sorry." Next, Leeson and his wife checked into a luxurious resort in Kona Kinabulu on the island of Borneo. He later said he spent his four days as the world's most wanted financial fugitive sunning himself on the beach, whitewater rafting and reading a Tom Clancy novel.

The same day Leeson checked into the Borneo resort the chairman of Barings was informed his bank was on the verge of collapse. After an unsuccessful attempt over the weekend to recuse the bank that enlisted the help of the Sultan of Brunei—reportedly the richest man in the world at that time—Baring's is declared insolvent on February 27 after it was disclosed that the bank had over a $1 billion in losses based on holdings of more that $6 billion in March Nikkei 225 futures and was short in Japanese bond and interest-rate futures.

On February 28, Leeson bought two tickets in his own name for a flight from Kota Kinabalu to London, with stops in Bandar Seru Begawan, Bangkok and Dubai and Frankfurt, where he was arrested while in transit. When Leeson was arrested in Frankfurt he looked like a tourist returning from a holiday; his wife was walking a few steps behind him and he had a baseball cap and paperback tucked his arm and a small backpack hanging from one shoulder.

After he was arrested, Leeson's lawyers tried to convince the British government that he had not committed numerous serious crimes to prevent his extradition to Singapore. Leeson was sentenced to 6½ years in a Singapore prison on December 2, 1995 after pleading guilty to two charges of cheating. The court also ruled that it was illegal for Leeson to make any money from his notoriety.

Leeson After His Arrest

Leeson wrote a book about his experiences while he was in prison. The $700,000 advance he received on the book reportedly went to help pay off his huge legal bills, The book was made into a movie called Rogue Trader, with Ewan MacGregor playing Leeson. Leeson’s fame grew. Mick Jagger was among those who showed up for the premier of the film. The book tour for Leeson's book was attended by his wife because Leeson was in prison.

Leeson served four years and four months in Singapore’s Tanah Merah Prison—about half of his sentence—and was released in 1999. While he was in prison his wife divorced him and he battled colon cancer. He was released from prison on good behavior.

Leeson told The Telegraph: “I had a lot of time to think about this during four and a half years at the notorious Changi prison in Singapore. It was a tough place to survive in as the only Caucasian and being surrounded by a tough gang culture. During my time in prison I found I had life-threatening cancer and my first wife also left me. There were many hours to reflect on who I was and how I had arrived at this situation. Money has never been my motivation. It is family that makes me happy – that is my most cherished possession – but I will not deny that having money makes family life easier so it can certainly help you be more content. [Source: Toby Walne, The Telegraph, August 19, 2012 \+\]

Leeson said he was sorry for what he had done. “I was foolish and very much regret what happened,” he said. A court froze his worldwide assets after he sold his story to a London tabloid. A Singapore law firm representing liquidators investigated him to see if he stashed any money from his Baring days. He had a $150 million order on his head which he was supposed to pay off personally. At that time it was is estimated that Leeson was able to keep about 35 percent of the money he earned. The rest went to paying back the debts he accrued.

Cashing in on Leeson's Notoriety

Harry's Bar, a former Leeson hang out, serves a cocktail called the "Bank Breaker," which is sweet, green and has an aftershock like the Kobe earthquake. Served schooner "spilled" into a tumble, the drink is made from one measure of honeydew melon liqueur, a half shot of whiskey and half shot of vodka, topped with soda water.

Other businesses that have cashed in on Leeson's notoriety include a graphics design company that produced a monopoly-like board game called "In the Nick of Time," in which players move around a board trying to amass huge trading profits while trying steer clear of disasters such as the Kobe earthquake. "At the end of the game," the director of the graphics art company told Reuter, "the players have to go back to their home base in London from Singapore via Frankfurt without getting caught." One of the best selling Leeson T-shirts was one that read, "Barings Learns a Le(e)sson."

Back in Britain people paid up to $300 a head to hear leeson tell his story and offer business tips on a sold-out lecture tour that earned him as much a $100,000 per lecture. The New York Times reported that after he was released offers flooded in. “He did a string of television commercials, including one for a Swedish stock brokerage firm, and was paid US$100,000 for an appearance before an audience of bankers and brokers. "Half went to the liquidators, half to me," he said.

Leeson's Life in the 2000s

In November 2006, the New York Times reported, Lesson “spoke at an annual dinner of financial regulators in London and then headed to Amsterdam for a speech to a firm of auditors. The previous month, he gave a presentation at a Dublin function on banking scandals, arguing that he should have been stopped by Barings at an early stage. The British bank, he says, was culpable for failing to supervise him and for accepting the bluster of a young trader prepared to disguise trading losses. Leeson, now 39, has recently been freed from an agreement in which he surrendered some of his earnings to the liquidators of Barings, which was sold to ING of the Netherlands. For over a decade, the liquidators had sought to recover money for creditors of the ruined bank. [Source: New York Times, December 27, 2006 \^/]

"I suppose it embodies more where I am now in life and the changes I have been through in the last 15 to 20 years," he told the New York Times about his new start in the west of Ireland. "Life is a little bit more slow-paced, but there is a quality of life which was possibly missing when I was in Singapore, when it was all about succeeding. I am more happy now." He spoke of his new day job as general manager of Galway's soccer club, in which he is responsible for everything from shirt sponsorship to planning for a potential redevelopment of the club's stadium. "There's a sea change in the way the club is run today," he said. \^/

“He still trades currencies -- mostly the dollar against the British pound and the euro -- through an account at an online brokerage firm. This time, he says, he feels confident in his trading decisions, contending that he was "ill-disposed" to knowing his limitations 11 years ago. Speaking last month, he confidently predicted that the dollar had further to fall against the pound and euro. "If I am risking my money it should be OK," he said. "If I were employed by a bank, it would be a different matter." \^/

On where Leeson in 2012, Toby Walne wrote in The Telegraph, Liquidators personally chased him for £100 million and he was limited to earning less than £3,000 a month to stop them taking a cut. They stopped chasing him in 2005 and he earns about £80,000 a year – the majority comes from after-dinner speaking. He lives near Galway, Ireland, with his second wife, Leona, 37, son Mackensey, eight, and stepchildren Alex, 13, and Kersty, 17. [Source: Toby Walne, The Telegraph, August 19, 2012]

Nick Leeson Interview with The Telegraph in 2012

Q: Are you a spender or a saver? A: I am not that flash with cash. There is a perception that City boys all drive around in fast cars and enjoy throwing their money around – that is not me. When I was working abroad I also preferred the company of locals rather than hanging out with the expats. I am not that materialistic and drive a Vauxhall Astra. [Source: Toby Walne, The Telegraph, August 19, 2012 \+\]

Q: What lessons has the industry learnt from the downfall of Barings? A: Barings was to have provided a wake-up call for the banks but it obviously failed – although regulations have tightened up. The central bank and regulatory authority could still do a much better job. The Financial Services Authority employs far too many staff and has lost its way by getting too bloated and bureaucratic. With a leaner, more focused outfit it could afford to pay enough to attract more talented staff who prefer to be employed on the trading floor. There needs to be scrutiny of the industry before things go wrong rather than reaction after the event. \+\

Do you use an independent financial adviser? “I would never use any financial adviser. They are salespeople. When you see a broker or a bank manager they have something to sell. They may be doing things in your interest, but their main task is to make money out of you. One of the reasons for the recent banking crisis is that people put too much trust into what they are told by those working in finance – this is because they have not been properly educated about personal finance. Our education system should have personal finance on the school curriculum. It really is not that complicated, but banks and advisers try to make it sound so difficult to understand so they can make money out of us.”

Do you invest in stocks and shares? “I have a pension fund I look after myself – I buy and sell shares within the fund but not on a daily basis. I do my trading on the internet. I would not give my money to someone else to look after. It is important to stay in control and get to decide how your pension fund is invested. The days when I took a more active interest in markets are far behind me.”

What has been your best buy? “I am not that materialistic but one weakness I have – which comes from my City days – is watches. I own a Rolex – not sure what model it is but it is probably worth about £2,000. I bought it in the Nineties in Hong Kong. I don't think I was cheated – if it was a hookey watch it would have stopped working by now. It is reliable and keeps great time. And your worst buy? Gym membership. I never seem to learn and each year sign up to a gym with great intentions but never seem to use it. The idea that it will make me get fit sucks me in every time. I also have a treadmill but at least that occasionally sees action.”

Has there ever been a point when you were worried about money? “Every time I asked for money when I was working in Singapore for Barings the cash simply came – I didn't perceive that there were any real concerns or that the bank was having any difficulties. You become blinkered. Dealing in large sums does not feel like real cash. I was focused on resolving the problem rather than worrying about the actual money.”

“The lessons of the Barings collapse do not seem to have been fully learnt as history has recently been repeating itself. My situation is not just about banking, there is a human interest aspect that strikes a chord with people. I do a lot of after-dinner speaking and conferences and it allows me to travel all over the world. I like to think my story is as relevant now as it has ever been.”

Image Sources:

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, Singapore Tourism Board, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Foreign Policy, Wikipedia, BBC, CNN, and various books, websites and other publications.

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© 2008 Jeffrey Hays

Last updated June 2015

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