As a 28-year-old derivatives trader Nick Leeson accomplished something Napoleon, two world wars, and the Great Depression could not. He bankrupted Barings Bank, Britain’s oldest merchant bank.
The “star trader” could not admit a mistake and managed to hide more than $1 billion in losses, which was more than the 233-year-old bank’s entire capital.
Barings had essentially handed Leeson the unchecked power to police himself, far away from headquarters. The bank employed Leeson in Singapore to run its futures trading operation on the SIMEX exchange.
When his early trades went bad, Leeson hid the losses in an internal error account numbered 88888. The account was set up to reconcile minor discrepancies. But it swiftly became a financial black hole.
No matter how bad his trades went, Leeson kept doubling down, placing highly leveraged bets on Japanese market movements. When the Kobe earthquake struck in January 1995, markets moved against him and his losses exploded.
In February 1995, Nick Leeson finally came clean, but not in person. He sent a fax to Barings’ London headquarters admitting the scale of the disaster. Then he tried to disappear.
He left Singapore with his wife, traveling through Malaysia and Thailand before surfacing in Europe. His flight from justice only lasted for about six days.
On March 2, 1995, German authorities arrested him at Frankfurt Airport, acting on an international warrant. He was extradited to Singapore, where he pleaded guilty to fraud. He was sentenced to six and a half years in Singapore’s Changi Prison and served just over four.
His story was later recounted in the 1999 film Rogue Trader. Today he’s a keynote speaker on risk management and corporate governance. He reportedly still trades, but with his own money, and he hosts a podcast.
In his 2015, book, Rogue Trader: The Original Story Of The banker Who Broke The System, Leeson laments that he became a victim of his ambitions.
“Success can be easily derived from putting food on the table for your children to eat as it can from running a Fortune 500 company,” he writes. “Unfortunately, it too me too long to learn that.”
Barings, founded in 1762, is gone. ING paid exactly one nominal pound to take over what was left.
The bank’s collapse became a case study in the worship of star traders, the lethal mix of ego and leverage, and most of all, failed oversight.
What bank gives unfettered access to its vault to a 28-year-old kid?