Nick Leeson
Encyclopedia
Nicholas "Nick" Leeson (born 25 February 1967) is a former derivatives broker whose fraudulent, unauthorized speculative trading
caused the collapse of Barings Bank
, the United Kingdom
's oldest investment bank, for which he was sent to prison. Since leaving prison in 1999 he became, and subsequently resigned as, the CEO of Irish
football club Galway United
and is active on the keynote / after-dinner speaking circuit where he advises companies about risk and corporate responsibility.
, where he attended Parmiter's School
. After finishing school in 1985 he landed a job as a clerk with a private bank, Coutts
. He then moved to Morgan Stanley
in 1987 for two years, eventually ending up with Barings in 1989.
(SIMEX). Barings had held a seat on SIMEX for some time, but did not activate it until Leeson was sent over. Leeson was sent to Singapore after he was denied a broker's license in the United Kingdom because of fraud on his application. Neither Leeson nor Barings disclosed this denial when Leeson applied for his license in Singapore.
In the October of 1994, Leeson was arrested in Singapore for an incident involving "mooning".
From 1992, Leeson made unauthorized speculative trades that at first made large profits for Barings: £10 million, which accounted for 10% of Barings' annual income. He earned a bonus of £130,000 on his salary of £50,000 for that year.
However, his luck soon went sour and he used one of Barings' error accounts
(accounts used to correct mistakes made in trading) to hide his losses. The account was numbered 88888 – 8 being a number considered to be very lucky in Chinese numerology. Leeson claims that this account was first used to hide an error made by one of his colleagues; rather than buy 20 contracts as the customer had ordered, she had sold them, costing Barings £20,000.
However, Leeson used this account to cover further bad trades. He insists that he never used the account for his own gain, but in 1996 the New York Times quoted "British press reports" as claiming that investigators had located approximately $35 million in various bank accounts tied to him.
Management at Barings Bank also allowed Leeson to remain Chief Trader while also being responsible for settling his trades, jobs usually done by two different people. This made it much simpler for him to hide his losses from his superiors.
The beginning of the end occurred on 16 January 1995, when Leeson placed a short straddle in the Singapore
and Tokyo
stock exchanges, essentially betting that the Japanese stock market would not move significantly overnight. However, the Kobe earthquake hit early in the morning on 17 January, sending Asian markets, and Leeson's trading positions, into a tailspin. Leeson attempted to recoup his losses by making a series of increasingly risky new trades (using a Long-Long Future Arbitrage), this time betting that the Nikkei Stock Average would make a rapid recovery. However, the recovery failed to materialize.
Leeson left a note reading "I'm Sorry" and fled Singapore on 23 February. Losses eventually reached £827 million (US$1.4 billion), twice the bank's available trading capital. After a failed bailout attempt, Barings was declared insolvent on 26 February.
After fleeing to Malaysia, Thailand
, and finally Germany
, Leeson was arrested and extradited back to Singapore on 20 November 1995, though his wife Lisa was allowed to return to England. While he had authorisation for the 16 January short straddle, he was charged with fraud for deceiving his superiors about the riskiness of his activities and the scale of his losses. Several observers have placed much of the blame on the bank's own deficient internal auditing
and risk management
practices. Indeed, the Singapore authorities' report on the collapse was scathingly critical of Barings management, claiming that senior officials knew or should have known about the "five eights" account.
Leeson pleaded guilty to two counts of "deceiving the bank's auditors and of cheating the Singapore exchange", including forging documents. Sentenced to six and a half years in Changi Prison
in Singapore, he was released from prison in 1999, having been diagnosed with colon cancer, which he survived despite grim forecasts at the time.
While in prison, in 1996, Leeson published an autobiography, Rogue Trader
, detailing his acts. A review in the financial columns of the New York Times stated, "This is a dreary book, written by a young man very taken with himself, but it ought to be read by banking managers and auditors everywhere." In 1999, the book was made into a film of the same name
starring Ewan McGregor
and Anna Friel
.
The events also form the subject matter of a 1996 documentary film made by Adam Curtis
, entitled 25 Million Pounds
.
, County Galway
, in the west of Ireland
. He is a regular guest on the after-dinner and keynote speaking circuit. He was appointed Commercial Manager of Galway United Football Club
in April 2005, rising to the position of General Manager in late November 2005. By July 2007 he had become the club's CEO but in February 2011, Leeson resigned his position. Leeson remains as a member of the board of directors of the club, but no longer has any role in the day to day operation of the club. He still finds time to deal in the stock markets, but only with his own money.
In June 2005, Leeson released a new book, Back from the Brink: Coping with Stress. It picks up his story where Rogue Trader left off, including in-depth conversations with psychologist Ivan Tyrrell asserting that the prolonged periods of severe stress that affected Leeson's mental and physical health have parallels in many other people's lives.
Rogue trader
A rogue trader is an authorised employee making unauthorised trades on behalf of their employer. It is most often applicable to financial trading, and as such is a term used to describe persons - professional traders - making unapproved financial transactions....
caused the collapse of Barings Bank
Barings Bank
Barings Bank was the oldest merchant bank in London until its collapse in 1995 after one of the bank's employees, Nick Leeson, lost £827 million due to speculative investing, primarily in futures contracts, at the bank's Singapore office.-History:-1762–1890:Barings Bank was founded in 1762 as the...
, the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
's oldest investment bank, for which he was sent to prison. Since leaving prison in 1999 he became, and subsequently resigned as, the CEO of Irish
Republic of Ireland
Ireland , described as the Republic of Ireland , is a sovereign state in Europe occupying approximately five-sixths of the island of the same name. Its capital is Dublin. Ireland, which had a population of 4.58 million in 2011, is a constitutional republic governed as a parliamentary democracy,...
football club Galway United
Galway United
Galway United F.C. was founded as Galway Rovers in 1937. They are a football club currently playing in the League of Ireland Premier Division, the top tier of the Irish football....
and is active on the keynote / after-dinner speaking circuit where he advises companies about risk and corporate responsibility.
Early life
Leeson was born in WatfordWatford
Watford is a town and borough in Hertfordshire, England, situated northwest of central London and within the bounds of the M25 motorway. The borough is separated from Greater London to the south by the urbanised parish of Watford Rural in the Three Rivers District.Watford was created as an urban...
, where he attended Parmiter's School
Parmiter's School
Parmiter's School is a co-educational school in Garston, Hertfordshire on the outskirts of North West London, England with a long history. Although the school admits pupils of all abilities it is partially selective...
. After finishing school in 1985 he landed a job as a clerk with a private bank, Coutts
Coutts
Coutts & Co. is one of the UK's private banking houses, now wholly owned by the Royal Bank of Scotland . RBS acquired Coutts and all of its overseas subsidiaries when it bought NatWest. On 1 January 2008, Coutts' international businesses were renamed RBS Coutts, aligning them more closely with...
. He then moved to Morgan Stanley
Morgan Stanley
Morgan Stanley is a global financial services firm headquartered in New York City serving a diversified group of corporations, governments, financial institutions, and individuals. Morgan Stanley also operates in 36 countries around the world, with over 600 offices and a workforce of over 60,000....
in 1987 for two years, eventually ending up with Barings in 1989.
Career
In 1992 he was appointed general manager of a new operation in futures markets on the Singapore International Monetary ExchangeSingapore International Monetary Exchange
The Singapore International Monetary Exchange was a futures exchange in Singapore.It was founded in 1984. On 1 December 1999, SIMEX merged with the Stock Exchange of Singapore to form the Singapore Exchange ....
(SIMEX). Barings had held a seat on SIMEX for some time, but did not activate it until Leeson was sent over. Leeson was sent to Singapore after he was denied a broker's license in the United Kingdom because of fraud on his application. Neither Leeson nor Barings disclosed this denial when Leeson applied for his license in Singapore.
In the October of 1994, Leeson was arrested in Singapore for an incident involving "mooning".
From 1992, Leeson made unauthorized speculative trades that at first made large profits for Barings: £10 million, which accounted for 10% of Barings' annual income. He earned a bonus of £130,000 on his salary of £50,000 for that year.
However, his luck soon went sour and he used one of Barings' error accounts
Error account
An error account is a type of account used for storing compensation for errors in trading, a transaction that is not posted in a timely manner because of inconsistencies, such as an incorrect account or routing numbers to the wrong name on the account, producing a claim that needs to be resolved as...
(accounts used to correct mistakes made in trading) to hide his losses. The account was numbered 88888 – 8 being a number considered to be very lucky in Chinese numerology. Leeson claims that this account was first used to hide an error made by one of his colleagues; rather than buy 20 contracts as the customer had ordered, she had sold them, costing Barings £20,000.
However, Leeson used this account to cover further bad trades. He insists that he never used the account for his own gain, but in 1996 the New York Times quoted "British press reports" as claiming that investigators had located approximately $35 million in various bank accounts tied to him.
Management at Barings Bank also allowed Leeson to remain Chief Trader while also being responsible for settling his trades, jobs usually done by two different people. This made it much simpler for him to hide his losses from his superiors.
Downfall
By the end of 1992, the account's losses exceeded £2 million, which ballooned to £208 million by the end of 1994.The beginning of the end occurred on 16 January 1995, when Leeson placed a short straddle in the Singapore
Stock Exchange of Singapore
The Stock Exchange of Singapore was a stock exchange company in Singapore. It was formed in 1973, when the termination of currency interchangeability between Malaysia and Singapore, caused the Stock Exchange of Malaysia and Singapore to separate into the SES and Kuala Lumpur Stock Exchange Bhd...
and Tokyo
Tokyo Stock Exchange
The , called or TSE for short, is located in Tokyo, Japan and is the third largest stock exchange in the world by aggregate market capitalization of its listed companies...
stock exchanges, essentially betting that the Japanese stock market would not move significantly overnight. However, the Kobe earthquake hit early in the morning on 17 January, sending Asian markets, and Leeson's trading positions, into a tailspin. Leeson attempted to recoup his losses by making a series of increasingly risky new trades (using a Long-Long Future Arbitrage), this time betting that the Nikkei Stock Average would make a rapid recovery. However, the recovery failed to materialize.
Leeson left a note reading "I'm Sorry" and fled Singapore on 23 February. Losses eventually reached £827 million (US$1.4 billion), twice the bank's available trading capital. After a failed bailout attempt, Barings was declared insolvent on 26 February.
After fleeing to Malaysia, Thailand
Thailand
Thailand , officially the Kingdom of Thailand , formerly known as Siam , is a country located at the centre of the Indochina peninsula and Southeast Asia. It is bordered to the north by Burma and Laos, to the east by Laos and Cambodia, to the south by the Gulf of Thailand and Malaysia, and to the...
, and finally Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
, Leeson was arrested and extradited back to Singapore on 20 November 1995, though his wife Lisa was allowed to return to England. While he had authorisation for the 16 January short straddle, he was charged with fraud for deceiving his superiors about the riskiness of his activities and the scale of his losses. Several observers have placed much of the blame on the bank's own deficient internal auditing
Financial audit
A financial audit, or more accurately, an audit of financial statements, is the verification of the financial statements of a legal entity, with a view to express an audit opinion...
and risk management
Risk management
Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities...
practices. Indeed, the Singapore authorities' report on the collapse was scathingly critical of Barings management, claiming that senior officials knew or should have known about the "five eights" account.
Leeson pleaded guilty to two counts of "deceiving the bank's auditors and of cheating the Singapore exchange", including forging documents. Sentenced to six and a half years in Changi Prison
Changi Prison
Changi Prison is a prison located in Changi in the eastern part of Singapore.-First prison and POW camp:...
in Singapore, he was released from prison in 1999, having been diagnosed with colon cancer, which he survived despite grim forecasts at the time.
While in prison, in 1996, Leeson published an autobiography, Rogue Trader
Rogue Trader (book)
Rogue Trader: How I Brought Down Barings Bank and Shook the Financial World is a book by Nick Leeson, who served four years in prison for fraud after bankrupting the London-based Barings Bank in 1995 by hiding $1.4 billion in debt he accumulated as a derivatives trader in Singapore.It was made into...
, detailing his acts. A review in the financial columns of the New York Times stated, "This is a dreary book, written by a young man very taken with himself, but it ought to be read by banking managers and auditors everywhere." In 1999, the book was made into a film of the same name
Rogue Trader (film)
Rogue Trader is a 1999 drama film directed by James Dearden about former derivatives broker Nick Leeson and the 1995 collapse of Barings Bank...
starring Ewan McGregor
Ewan McGregor
Ewan Gordon McGregor is a Scottish actor. He has had success in mainstream, indie, and art house films. McGregor is perhaps best known for his roles as heroin addict Mark Renton in the drama Trainspotting , young Jedi Obi-Wan Kenobi in the Star Wars prequel trilogy , and poet Christian in the...
and Anna Friel
Anna Friel
Anna Louise Friel is an English actress. She rose to fame in the UK as Beth Jordache on the Channel 4 soap Brookside.-Early life:...
.
The events also form the subject matter of a 1996 documentary film made by Adam Curtis
Adam Curtis
Adam Curtis is a British BAFTA winning documentarian and a writer, television producer, director and narrator. He works for BBC Current Affairs.-Early life and education:Curtis was born in 1955...
, entitled 25 Million Pounds
25 Million Pounds
25 Million Pounds is a 1996 British documentary film by filmmaker Adam Curtis. It details the collapse of Barings Bank in the mid-1990s due to the machinations of Nick Leeson, who lost £827 million primarily by speculating on futures contracts.-Summary:The film describes Barings as one of the...
.
Aftermath
Nick Leeson's first wife Lisa divorced him while he was in prison. He married Leona Tormay, in 2003 and they now live in BarnaBarna
Bearna is a Gaeltacht village west of Galway city in County Galway, Ireland, on the R336 regional road. Once a satellite of Galway city, the village is now rapidly becoming one of its suburbs. Officially the village is regarded as Irish speaking and is therefore a constituent part of the regions...
, County Galway
County Galway
County Galway is a county in Ireland. It is located in the West Region and is also part of the province of Connacht. It is named after the city of Galway. Galway County Council is the local authority for the county. There are several strongly Irish-speaking areas in the west of the county...
, in the west of Ireland
Republic of Ireland
Ireland , described as the Republic of Ireland , is a sovereign state in Europe occupying approximately five-sixths of the island of the same name. Its capital is Dublin. Ireland, which had a population of 4.58 million in 2011, is a constitutional republic governed as a parliamentary democracy,...
. He is a regular guest on the after-dinner and keynote speaking circuit. He was appointed Commercial Manager of Galway United Football Club
Galway United
Galway United F.C. was founded as Galway Rovers in 1937. They are a football club currently playing in the League of Ireland Premier Division, the top tier of the Irish football....
in April 2005, rising to the position of General Manager in late November 2005. By July 2007 he had become the club's CEO but in February 2011, Leeson resigned his position. Leeson remains as a member of the board of directors of the club, but no longer has any role in the day to day operation of the club. He still finds time to deal in the stock markets, but only with his own money.
In June 2005, Leeson released a new book, Back from the Brink: Coping with Stress. It picks up his story where Rogue Trader left off, including in-depth conversations with psychologist Ivan Tyrrell asserting that the prolonged periods of severe stress that affected Leeson's mental and physical health have parallels in many other people's lives.
Trading jacket
On 5 April 2007, the Guardian newspaper reported that KPMG, the liquidators of Barings PLC, had sold a trading jacket thought to have been worn by Nick Leeson while trading on SIMEX in Singapore. The jacket was offered for sale on eBay but it failed to reach its reserve price despite a highest bid of £16,100. It was subsequently sold for £21,000. In October 2007 a similar jacket used by Leeson's team but not thought to have been worn by Leeson himself sold at auction for £4,000.Publications
- Rogue TraderRogue Trader (book)Rogue Trader: How I Brought Down Barings Bank and Shook the Financial World is a book by Nick Leeson, who served four years in prison for fraud after bankrupting the London-based Barings Bank in 1995 by hiding $1.4 billion in debt he accumulated as a derivatives trader in Singapore.It was made into...
: How I Brought Down Barings Bank and Shook the Financial World by Nick Leeson and Edward Whitley (Mar 1996, hardcover) ISBN 0-316-51856-5; (1997, softcover) ISBN 0-7515-1708-9 - Back from the Brink: Coping with Stress (2005) – ISBN 0-7535-1075-8
See also
- SpeculationSpeculationIn finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum...
in financial markets - List of trading losses
- Jérôme KervielJérôme KervielJérôme Kerviel is a French trader who has a pending appeal of his conviction in the January 2008 Société Générale trading loss incident for breach of trust, forgery and unauthorized use of the bank's computers, resulting in losses valued at €4.9 billion.Société Générale characterizes Kerviel...
- Kweku Adoboli
- Galway UnitedGalway UnitedGalway United F.C. was founded as Galway Rovers in 1937. They are a football club currently playing in the League of Ireland Premier Division, the top tier of the Irish football....
- CITIC#Unauthorized Forex trades
External links
- Nick Leeson official website
- Column archive at The GuardianThe GuardianThe Guardian, formerly known as The Manchester Guardian , is a British national daily newspaper in the Berliner format...
- Leeson's legacy lives on in Singapore, BBC NewsBBC NewsBBC News is the department of the British Broadcasting Corporation responsible for the gathering and broadcasting of news and current affairs. The department is the world's largest broadcast news organisation and generates about 120 hours of radio and television output each day, as well as online...
, 23 February 2005 - Business: The Economy How Leeson broke the bank, BBC NewsBBC NewsBBC News is the department of the British Broadcasting Corporation responsible for the gathering and broadcasting of news and current affairs. The department is the world's largest broadcast news organisation and generates about 120 hours of radio and television output each day, as well as online...
, 22 June 1999 - Galway United FC
- Singapore's Most Famous Convicts, from Think Singapore