26 February 1995: “Rogue trader” Nick Leeson breaks Barings Bank
Barings Bank, one of the world’s most venerable banks, was brought to its knees by the original rogue trader, Nick Leeson, on this day in 1995.
On this day in 1995, Barings Bank, one of the world's most venerable banks, was brought to its knees by the original “rogue trader”, Nick Leeson. In many ways, Leeson's is an old-fashioned rags to riches (then back to rags) story.
After all, it's hard to think of a greater contrast to Leeson's humble upbringing in Watford than the jet-set life he enjoyed in exotic Singapore and all the power and money that came from working for the prestigious bank.
After years of “pushing paper around”, Leeson was promoted to head a team dealing in futures contracts on the Singapore International Monetary Exchange (Simex) now the Stock Exchange of Singapore. In his memoirs, Rogue Trader, he writes: “Now, out on the trading floor, I could work with instant money it was hanging in the air right in front of me, invisible but highly charged, just waiting to be earthed.”
By 1993, he was generating 10% of the bank's profits – about £10m. On top of his £50,000 salary, he received a £130,000 bonus, which was largely academic thanks to the use of expense accounts. “The numbers in our bank balances just rolled up.”
Then Leeson let the genie out of the bottle. Finding that one of his traders had made a simple mistake that cost the bank £20,000, he swept the loss into a “dormant errors account” to be put right later the infamous 88888 account. But the losses soon spiralled out of control. By the autumn on 1994, he was £208m in the red.
Leeson started selling share options to win back the money, “straddling” the market and gambling that the Nikkei, Japan's benchmark index, would stay stable. Then disaster struck. On 17 January 1995, the Kobe earthquake in Japan sent the market plunging. When the losses came to light in February, Barings Bank owed £827m, and was wound up after 233 years. The remains were scooped up by Dutch bank ING for a pound.
Leeson first fled to Borneo and was eventually arrested in Frankfurt after trying to make his way back to London. He was returned to Singapore, where he was sentenced to six and a half years in Changi prison.