Nicholas William “Nick” Leeson is the derivatives trader infamous for triggering the collapse of Barings Bank, which is the United Kingdom’s oldest bank. Investigations revealed that he had engaged in fraudulent and unauthorized speculative trading, causing him to serve a prison sentence until 1999. During his prison time, he penned and released an autobiography entitled Rogue Trader: How I Brought Down Barings Bank and Shook the Financial World, which was later on made into a film starring Ewan McGregor.
But even with this fall from grace, Nick Leeson is considered as an exceptional trader who has since focused on advising companies about risk and corporate responsibility after being released from prison. In 2005, he released a book called Back from the Brink: Coping with Stress to pick up where his previous book left off.
Nick’s foray into the financial world started with his first job as a clerk in a private bank called Coutts in 1985. Two years later, he found work at Morgan Stanley before making his way to Barings Bank in 1999.
During his stint at Barings, he was appointed as general manager of a new operation in the futures market of Singapore’s International Monetary Exchange. As it turns out, he was sent overseas to Asia because his broker’s license application was denied in the United Kingdom because of fraud in his application, something that both Barings Bank and Leeson denied when he applied for a license in Singapore.
His first few years on SIMEX were off to a good start as he was able to rake in large profits for Barings, amounting to 10 million GBP or nearly 10% of the bank’s annual profits. It didn’t matter that a huge portion of these positions were unauthorized because Barings granted him a bonus of 130,000 GBP on his salary, which was around 50,000 GBP in 1992.
However, Leeson was unable to keep up his lucky streak, winding up using one of the bank’s error accounts to hide his massive trading losses. Investigators involved in his case later on revealed that approximately $35 million worth of losses were in bank accounts tied to him. This behavior went on for a while since Barings Bank allowed him to be the chief trader while also being in charge of trade settlement, making it easy for him to hide losses from his superiors.
In 1992 alone, Leeson’s losses were reportedly around 2 million GBP. These losses grew to 208 million GBP in a couple of years. One of his biggest losses around that time was his bet on the Asian markets just before the Kobe earthquake struck, sending equities tumbling and his positions deep in the red. He tried to make up for these losses by taking a counter position on the belief that the Nikkei would soon recover, but this wound up digging a deeper hole for his account.
Leeson then fled to Malaysia, Thailand, and Germany. Authorities eventually tracked him down in Frankfurt and was extradited back to Singapore in 1995. He was sentenced to six and a half years in in Changi Prison and was then released in 1999 when he was diagnosed with colon cancer.
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Source:: Trader Fact Files: Nick Leeson