Nick Leeson

Nicholas William Leeson[2] (born 25 February 1967) is a former English derivatives trader notorious for bankrupting Barings Bank, the United Kingdom's oldest merchant bank. He was a rogue trader who made fraudulent, unauthorized, and speculative moves, and his actions led directly to the 1995 collapse of the bank, for which he was sentenced to prison.

This article is about the derivatives broker. For the racing driver, see Nick Leason.

Nick Leeson
Born
Nicholas William Leeson

(1967-02-25) 25 February 1967
Watford, Hertfordshire, England
EducationParmiter's School
Occupation
Spouse(s)
  • Lisa Sims
    ​
    (
    m. 1992; div. 1997)
    [1]
  • Leona Tormay
    (
    m. 2003)
Websitenickleeson.com

Between 2005 and 2011, Leeson had management roles at League of Ireland club Galway United After suffering financial difficulties, and going into bankruptcy the club dropped out of the League of Ireland after the 2011 season. He is also active on the keynote and after-dinner speaking circuit, where he advises companies about risk and corporate responsibility. Leeson competed in the UK Celebrity Big Brother 2018, where he finished in fourth place.

Early life

Nick Leeson was born in Watford, Hertfordshire and attended Parmiter's School in nearby Garston. Born to working class parents on a council estate, his father was a self-employed plasterer, his mother a nurse. After finishing sixth form in 1985 with six O Levels and two A level passes in English Literature and History with C and D grades respectively (failing his third subject, Mathematics),[3][4] Leeson was hired as a clerk with the Lombard Street branch of the Coutts private bank.[5] There, Leeson was settling paper cheques, crediting and debiting client accounts.[6]

In 1987, Leeson moved to Morgan Stanley's Futures and Options back office, clearing and settling listed derivatives transactions. With few prospects for a front office role, Leeson joined Barings Bank two years later, on a salary of £12,000 a year. With four other settlement specialists, he was briefly seconded to Hong Kong to troubleshoot Barings's back office in Jakarta, Indonesia. Leeson returned to London in September 1991 to investigate a case of fraud between a client and a Barings employee. The employee had used the client's account to trade on a proprietary basis until margin calls from the clearinghouses unraveled the scheme.[7]

Career

In April 1992, Barings decided to open a Future and Options office in Singapore, executing and clearing transactions on the Singapore International Monetary Exchange (SIMEX).[8] Barings had held a seat on SIMEX for some time, but did not activate it until Leeson, appointed general manager, was sent over to head both front office and back office operations. Prior to leaving, Leeson was denied a broker's licence in the UK because of committing fraud on his application.[9] He had failed to report a judgment against him entered by the National Westminster Bank. Neither Leeson nor Barings disclosed this denial when he applied for his licence in Singapore.[10]

From 1992, Leeson made unauthorised speculative trades that at first made large profits for Barings: £10 million, which accounted for 10% of Barings' annual profit.[11] He earned a bonus of £130,000 on his salary of £50,000 for that year. Leeson's luck soon went sour and he used one of Baring's error accounts (accounts used to correct mistakes made in trading) to hide his losses.[12][13] He says that this account was first used to hide an error made by one of his colleagues. She had been assigned to buy 20 futures contracts for Fuji Bank, but had sold them instead, costing Barings £20,000.[14][15][16]

However, Leeson used this error account to cover further bad trades by himself and others. For example, he used it to cover a number of mistakes made by one of his traders who frequently came to work after long nights of partying. Leeson believes that he first crossed into out-and-out criminal conduct when he forgot to reconcile a discrepancy of 500 contracts, costing Barings US$1.7 million. He concluded that the only way to hide such a massive error and keep his job was to hide it in the error account.[16] Leeson insists that he never used the account for his own gain, but in 1996 The New York Times quoted "British press reports" as saying that investigators had located approximately $35 million in various bank accounts tied to him.[8] Management at Barings also allowed Leeson to remain general manager and chief trader while also being responsible for settling his trades. In the latter role, he was responsible for ensuring accurate accounting for the trading operation. These jobs were usually held by two different people, and allowing Leeson to do both made it much simpler for him to hide his losses from his superiors in Singapore and London.

Downfall

By the end of 1992, the error account's losses exceeded £2 million, increasing to £23 million in late 1993. This amount ballooned to £208 million by the end of 1994.[17] Leeson had followed a "doubling" strategy: every time he lost money, he would double the amount that was lost in order to recoup the amount. This had been successful for him in the past, including once in 1993 where he was able to cover a £6 million negative balance in the error account and after which he vowed not to use the account again. However, Leeson had to maintain his reputation as a trading genius and soon found himself hiding his losses there again. As the losses grew higher and higher, Leeson fabricated cover stories to explain why he needed more cash from London. His sterling reputation protected him from close scrutiny.[18]

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 materialise.[17]

Leeson left a note reading, "I'm sorry" and fled Singapore on 23 February. Losses eventually reached £827 million (US$1.4 billion), twice Barings's available trading capital. After a failed bailout attempt, Barings, which had been the UK's oldest merchant bank, was declared insolvent on 26 February.[19] After fleeing to Malaysia, Thailand, and finally Germany, Leeson was arrested in Frankfurt and extradited back to Singapore on 20 November 1995,[20] though his wife Lisa was allowed to return to England. While he had authorisation for 16 January short straddle, Leeson 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 Barings's own deficient internal auditing and risk management practices.

Leeson pleaded guilty to two counts of "deceiving the bank's auditors and of cheating the Singapore exchange",[2] including forging documents.[21] Sentenced to six and a half years in Changi Prison in Singapore, he was released in 1999, having been diagnosed with colon cancer, which he survived despite grim forecasts at the time. 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."[8] 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 television documentary made by Adam Curtis, titled Inside Story Special: £830,000,000 – Nick Leeson and the Fall of the House of Barings.[22]

Aftermath

While he was in prison, Leeson's first wife Lisa divorced him. In 2003, as a mature student, Leeson completed a BSc in Psychology at Middlesex University. He married Leona Tormay, an Irish beautician[23] and they now live in Barna, County Galway, Ireland. Leeson is a regular guest on the after-dinner and keynote speaking circuit[24][25] and an occasional guest lecturer at the nearby National University of Ireland.

Leeson was appointed commercial manager of Galway United F.C. in April 2005, rising to the position of general manager in late November 2005. By July 2007 he had become the club's CEO[26] but in February 2011, after the club entered severe financial difficulties he resigned his position.[27] He still deals in the stock markets, but only with his own money.[26] 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. In 2013 he appeared in Celebrity Apprentice Ireland on TV3.[28]

Trading jacket

On 5 April 2007, The Guardian reported that KPMG, the liquidators of Barings PLC, had sold a trading jacket thought to have been worn by 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.[29] 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.[30]

Publications
  • Leeson, Nick; Whitley, Edward (March 1996). Rogue Trader: How I Brought Down Barings Bank and Shook the Financial World. ISBN 0-316-51856-5.
  • Leeson, Nick; Tyrrell, Ivan (July 2005). Back from the Brink: Coping with Stress. ISBN 0-7535-1075-8.
gollark: But Olivia is all.
gollark: Interesting.
gollark: Who am I then?
gollark: Not in the general case.
gollark: There is. The optimiser says so.

See also

Notes
  1. "Leeson to have cancer operation". BBC News. 8 August 1998.
  2. "Nick Leeson: biography part II". 1 March 2011. Retrieved 23 February 2012.
  3. Rawnsley, Judith H (1996). Total Risk: Nick Leeson and the Fall of Barings Bank. University of Michigan: HarperCollins. pp. 88. ISBN 9780887307812.
  4. Powell, Robin (10 July 2015). "4 Lessons to Learn From Nick Leeson".
  5. Michael, Costello (6 June 2011). "The original rogue trader: interview with Nick Leeson".
  6. Elga, Drummond (2007). The Dynamics of Organizational Collapse: The Case of Barings Bank. Routledge. p. 20. ISBN 9780415399616.
  7. Laurent, Jacque (2015). Global Derivative Debacles: From Theory To Malpractice (Second Edition). World Scientific Publishing Company. p. 146. ISBN 9789814699891.
  8. Floyd Norris (31 March 1996). "Upper-Class Twits Made Me Do It". New York Times. Retrieved 23 February 2012.
  9. Maeda, Martha (2010). The Complete Guide to Spotting Accounting Fraud & Cover-ups. Atlantic Publishing Company. p. 31. ISBN 978-1-60138-212-2.
  10. Hal S. Scott (2006). International Finance: Transactions, Policy, and Regulation. Foundation Press. ISBN 978-1-59941-263-4.
  11. "Nick Leeson: biography part I". 1 March 2011. Retrieved 23 February 2012.
  12. "How Leeson broke the bank". BBC News. 22 June 1999.
  13. "How account 88888 sank Britain's oldest bank". The Independent. 16 February 1996.
  14. "The man who broke the queen's bank". The Irish Times. 24 February 1996.
  15. "Barings rogue trader Nick Leeson: 'Money is not my motivation'". The Daily Telegraph. 19 August 2012.
  16. Leeson, Nick; Whitley, Edward (March 1996). Rogue Trader: How I Brought Down Barings Bank and Shook the Financial World. ISBN 0-316-51856-5.
  17. Monthe, Paul (February 2007). "How Nick Leeson caused the collapse of Barings Bank". Next Finance. Retrieved 4 December 2018.
  18. Marthinsen, John E. (May 2018). "Barings Bank PLC: Leeson's Lessons". Risk Takers. De Gruyter. pp. 200–204. ISBN 9781547400058.
  19. "25 Million Pounds". 27 December 2009. Archived from the original on 29 March 2012. Retrieved 23 February 2012.
  20. "Bonn approves Leeson's extradition". Retrieved 4 December 2018.
  21. "Nick Leeson: Rogue Trader". Crime & Investigation Network.
  22. "Inside Story Special – BBC One London – 12 June 1996". BBC Genome.
  23. McDonald, Brian (14 June 2003). "Rogue trader Leeson ties knot with Irish love". Irish Independent. Retrieved 23 February 2012.
  24. Culshaw, Peter (8 January 2009). "Nick Leeson Lecturing Others on The Current Recession". The Daily Telegraph. London. Retrieved 23 February 2012.
  25. "Nick Leeson: Infamous Rogue Trader Responsible For The Collapse of Barings Bank In 1995". Archived from the original on 4 April 2012. Retrieved 23 February 2012.
  26. "Rogue trader Leeson 'eyes deals'". BBC News. 7 March 2007. Retrieved 23 February 2012.
  27. Brendan White (2 February 2011). "Leeson resigns Galway Utd CEO position". Archived from the original on 14 May 2012. Retrieved 23 February 2012.
  28. "Judges and Contestants". TV3.ie. Archived from the original on 27 September 2013. Retrieved 25 September 2013.
  29. Wearden, Graeme (5 April 2007). "Nick Leeson's jacket raises £21,000". The Guardian. London. Retrieved 23 February 2012.
  30. "Howard makes his mark at Norwood's Distressed Investing Dinner". Norwood. 16 October 2007. Archived from the original on 25 February 2012. Retrieved 23 February 2012.
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