Nick Leeson: the man who broke Barings Bank

"Rogue trader" Nick Leeson’s losses cost his employer, Barings Bank, an estimated £860m, plunging it into bankruptcy.

Nick Leeson © David Lodge/FilmMagic via Getty Images
© Getty
(Image credit: Nick Leeson © David Lodge/FilmMagic via Getty Images)

Nick Leeson was born in Watford in February 1967 and left school after A-Levels to became a clerk in the Lombard Street branch of Coutts bank. By 1987 he had moved to a “back office” (that is, support) role at investment bank Morgan Stanley before taking up a similar position at Barings Bank, where one of his duties involved investigating a case of fraud. By 1992 he had been promoted to the head of Barings Futures Singapore, where he was responsible for “front office” trading decisions as well as providing administrative support.

What was the scam?

The primary task of Barings Futures Singapore was to carry out orders for clients and to make money by exploiting small differences in prices between the Singapore and Japanese markets. In an attempt to boost profits, Leeson started to make proprietary trades with the bank’s own money, focusing mainly on Japanese market index futures. When these trades went badly, Leeson started to hide the mounting losses in a special account designed to correct trading errors. As the losses grew, he increased the size of his bets, hoping that a change in the market would enable him to repay the balance.

What happened next?

The collapse in the Japanese market following the Kobe earthquake in January 1995 led to yet more losses. They eventually grew so large that Leeson realised it was inevitable he would be discovered. He therefore fled Singapore the next month, confessing his crime in a note he left behind. Eventually captured by the authorities in Germany, he sought extradition to the UK, but was eventually sent back to Singapore, where he was sentenced to six and a half years in prison for fraud and forgery, before being released in 1999.

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Lessons for investors

Leeson’s losses cost Barings an estimated £860m, plunging it into bankruptcy. Despite last-minute attempts to organise a bailout, its main operations were purchased by Dutch bank ING for ��1. This ensured that depositors were protected from losses, but subordinated bondholders in the parent company lost most of their £100m investment. Barings’ management was not involved in Leeson’s fraud, but their complacency and arrogance should have been big red flags for investors. Shortly before the collapse, chairman Peter Baring infamously boasted that it was “not actually terribly difficult to make money in the securities business”.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri