1. What was the case about? (Summary of the Case)
The case was about how one man single-handedly brought down one of the
world’s most historic banks. The man was Nick Leeson and it happened from 1992 to 1995. He did it while holding the position of general manager to Barings Securities in Singapore. As general manager he oversaw both trading and back office needs, something uncommon in the industry due to the fact that it eliminated necessary checks and balances that would prevent such fraud from occurring. He had authority to deal in futures and options order for clients or other firms within Barings and arbitraging price differences between Nikkei futures traded on the SIMEX and Osaka ...view middle of the document...
Once again he bet the Nikkei would rebound, unfortunately it never did. When it was all said and done Leeson had lost $1.4 billion with his irresponsible trading. Barings was then unable to meet SIMEX’s margin call and was therefore declared bankrupt and sold to ING for £1. Leeson was arrested with his wife in Frankfurt, Germany on the same day. He was then convicted to serve six and a half years in a Singaporean prison.
2. Who was (were) the individual (s) and company (ies) involved?
The individual was Nicholas William Leeson, he started his career as a clerk with royal bank Coutts, he then worked for other firms such as Morgan Stanley before ending up with Barings. He made an impression on the bank when he was transferred to Jakarta, Indonesia to handle a back office problem which involved £100 million of share certificates and handled it within 10 months. He was then promoted to the trading floor and eventually was assigned to Barings new operations in the futures markets on the SIMEX as general manager.
Barings bank is the institution involved in this case. It was Britain’s oldest merchant bank, being founded in 1762; it had financed the Napoleonic Wars, Louisiana Purchase and the Erie Canal. It was a bank whose culture and higher management came from merchant banking which didn’t allow them to see the threats in trading.
3. When and where did it happen?
It happened from April 1992 to February 1995 in Singapore. It occurred on the Simex trading floor to be exact.
4. Why did it happen?
It was a perfect storm of events. The lack of checks and balances that Barings bank had mixed with Nick Leeson’s experience with Barings systems and his motivation to do it led to the collapse, as a former colleague of Leeson said "If anybody could have covered it up, it would have been him," "He knows the systems inside out.".
The reason why he started taking riskier positions and why he created secret account 88888 was because of a new trader’s mistake which caused a loss of £20,000. He then started trading trying to regain that loss, taking riskier trades each time and increasing the losses.
5. How did the case come to the attention of the media?
The case came to the attention of the media when Barings bank executives discovered Leeson’s trading activity and informed the Bank of England that they would not be able to meet SIMEX’s margin call, therefore declaring them bankrupt. Leeson had fled Singapore to Malaysia with his wife in an attempt to make it to London. They where arrested in Frankfurt.
6. What was the outcome of the case?
Barings Bank collapsed because it was unable to meet SIMEX’s margin call. The bank of...