From unfair trading to redemption

It is somewhat surreal to hear the applause from the audience – a room full of financial industry professionals – during Nick Leeson’s presentation. After all, his crimes led to the downfall of his employer, Barings Bank, with various financial consequences for his colleagues and band partners.

He came from a humble background and grew up in Watford, England. At the age of 18, he was employed as a settlement assistant at Coutts, a private bank. “I always thought I wanted to go to college and go to law school, I probably should have,” said Nick Leeson at the Cross-Border Distribution Conference on Thursday 25 May.

After spending a few training years at Morgan Stanley, he joined Barings Bank in 1991, a “very stable, 233-year-old merchant bank that was going through an identity crisis.” He explains that the bank, which employed 2,500 people, “had a risk manager, a compliance officer [et] I think it was the same person”.

Thanks to his work ethic, at the age of 25 he managed to move to Singapore to head the futures and options (F&O) department.

Nick Leeson borrowed from the Wall Street Journal the motto “knowledge is nothing without understanding” to explain the bank’s failure. According to him, some colleagues had received the best training but were unable to “understand how the company is structured”. Furthermore, he indicated that his colleagues did not want or try to understand what was going on, “and that is a mistake”.

From the first day I placed the trade on the 5-8 account, I expected a knock on the door, every minute of the day, every time someone called, it was done, I had to be unmasked”.

Nick Leeson, former dishonest trader

He said he had “never” been challenged by other traders or senior staff. He explained that the R&D operation is a “cash-rich business” where “you take more money from your customers than you give to the stock exchange”. He adds: “The fact that they sent me £650m to cover my illegal cash-rich positions is just absurd over a three-year period”.

“We can no longer deal with Barings”

Regarding some abnormally high futures positions and clear client concerns about the bank’s financial situation, former Barings employee Yuri Bender of the Financial Times reported that Lord Andrew Fraser, then chief executive of Barings Securities, reportedly said with “classic British understatement: this is woefully unsatisfying, isn’t it?”

“My illegal position of 5-8 figures was huge [et] kept growing,” said Nick Leeson. “Initially it was an error account,” he added. “From the first day I placed the trade on the 5-8 account, I expected it to knock on the door, every minute of the day, every time someone called, it was done, I would be unmasked.”

He explained that his positions had been affected by several events, including the Kobe earthquake. Still, management earmarked “£650m” to cover its market losses. Even the Singapore International Monetary Exchange (Simex), the local financial regulator, “[s’est] concerned about how a small bank [avec] an initial capital of just £250m, got £650m in that time,” said Nick Leeson. “You know, I had a position at Simex that was unchecked for almost three years [et] the gap widened day by day.

“Simex sent a letter to the CEO of Barings in Singapore [qui] didn’t know anything about the R&D department,” said Nick Leeson. “So he gave the letter to the director who ran the operations department [au niveau local], who therefore gave me the letter so I could read it,” he recalls. “So I was the one who answered Simex about my illegal positions!”

It appears that no one – including internal auditors, external auditors and the regulator – identified the discrepancies in transactions and account reconciliations until February 23, 1995, when he fled Singapore because he “could not reasonably provide an explanation for an illegal account .”

“Catch me if you can”

After suffering losses totaling $1.4 billion, Nick Leeson fled Singapore on February 23, 1995 without any plan. An international manhunt follows covering a list of countries he has visited such as Malaysia, Brunei, Thailand, Abu Dhabi and Germany.

After flying to Kuala Lumpur and then to Kota Kinabalu, he realized he needed to “get to a Western environment as quickly as possible. You turn on the television and yes, there are pictures of me everywhere”. And to add, “I don’t know how I could cross the border.” But when he arrived in Germany, he was recognized and extradited to Singapore.

“Prison was tough in Singapore”

In prison, you are locked up 23 hours a day, you sleep on the floor, which is very rough and uneven. Everyone is a member of a triad gang,” he explains. As a member of a Triad gang, “you’re either a fighter or a general, there’s not much in between.” To his surprise, he was promoted to the rank of general because “I was a top criminal who stole millions of Singapore dollars, so they thought I was great.”

Suffering from colon cancer, he underwent an operation that left him with 39 staples and had to recover in difficult conditions. He believes these circumstances have made him “stronger, tougher and more resilient”.

A financial scandal tends to start with small mistakes that grow out of proportion. “You know what you’re doing [est mal]“Admitted Nick Leeson. Instead of reporting them to management, he redoubled his efforts, hoping to “reach the same level and nobody notices.”

“And if you continue as I did then, you must be fully responsible for your actions.” But his fear of failure led him to a situation where “admitting what happened was very, very difficult.”

Nick Leeson managed to attract public sympathy. In fact, he ended by advocating the virtue of honesty. “I’m way too honest these days. I say too much to my wife!” Judging by the reactions of the conference attendees, it seems the public has chosen to give Nick Leeson a second chance…

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