Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, February 28, 1995 TAG: 9502280104
SECTION: NATIONAL/INTERNATIONAL PAGE: A-1 EDITION: METRO
SOURCE: DIRK BEVERIDGE ASSOCIATED PRESS
DATELINE: LONDON LENGTH: Medium
The friendly, self-confident trader was supposed to go after small profits, betting on sure things in Asian futures markets.
But in late January, from his desk on the 24th floor of the concrete-and glass Ocean Tower of Singapore's financial district, Nick Leeson changed strategies. He started making huge bets with huge risks.
He broke the bank - his own.
The collapse of Baring Brothers and Co., Britain's oldest investment bank, reverberated Monday through global markets and astonished bankers everywhere. If it could happen to the venerable Barings, they realized, it could happen to anyone.
Some 4,000 Barings employees wondered if they would still have jobs. Bank customers, including Prince Charles, had their funds frozen.
In the first hours of the collapse, no one could say precisely how one trader could wreck an institution, or why.
Leeson, who turned 28 Saturday, wasn't around to say.
``Mr. Leeson has left his desk, and no doubt that is because, at the very least, he finds it embarrassing to describe his responsibility for a series of investments which has brought down an entire 250-year-old banking group,'' Britain's Chancellor of the Exchequer, Kenneth Clarke, told the House of Commons on Monday.
``His explanation will indeed be interesting when he emerges,'' Clarke said.
Leeson was last seen at work Thursday. The office is now cordoned off by authorities. Neither he nor his 23-year-old wife, Lisa, has been seen at home since Friday.
There are signs of a hurried departure from his fifth-floor apartment on Orchard Road, a popular address for Singapore millionaires. Shirts still hang on a balcony clothesline. Friday's Straits Times and Business Times are piled at the door, as are Saturday's and Sunday's. The most recent paper there, Monday's, tells the Barings story.
Piling up at Barings are losses - hundreds of millions of dollars in losses - that mounted as thousands of other traders in Asia began betting against the bank.
Eddie George, Bank of England governor, suggested that Leeson got a little over his prematurely balding head.
``Perhaps he did a little business he shouldn't have,'' George told reporters at the bank's headquarters on Threadneedle Street.
``Then he tried to double up, and he lost some more money. So he doubled up again to try to cover his back. I don't know.''
This much, however, is known:
Leeson, a native of the London area, was authorized by Barings to conduct ``arbitrage'' trading based on the difference between Tokyo stock futures prices in Osaka and Singapore.
Markets in those cities offer futures contracts in which investors can bet that the value of Tokyo's Nikkei 225 stock index will either rise or fall.
The price of the Nikkei futures generally move in the same direction in Osaka and Singapore, much as gold prices in London and Zurich will track one another.
But often there is a differential of a few pennies - and those pennies can add up for someone making big trades.
Leeson was instructed to buy Nikkei futures in Osaka and sell them in Singapore whenever that was profitable. As long as he bought in one market and sold in the other, he could cash in on the differential without being burned by a big market move.
But on Jan. 26, Leeson began buying in both markets.
He could have made a bundle - if the futures contracts he bought increased in value. But Japanese stock prices began falling.
To save himself, Leeson apparently made bigger and bigger bets, hoping the market would turn in his favor.
It never did.
George suggested collusion with other bank employees seemed likely, because Leeson's trades had to be tallied by back-room workers every night.
Senior executives at Barings' London headquarters got wind that something was wrong Thursday, and flew to Singapore. Friday, they contacted the Bank of England.
The bank's governor was informed as he and his family arrived in Avoriaz, France, for a skiing holiday. He caught the first plane back.
The first thing he did, he later said, ``was have a drink.''
Unfortunately for Leeson, Barings and the Bank of England, other traders had seen the British bank going strongly in one direction and decided they could cash in by betting the other way.
That dashed hopes of finding players who had bet against Barings and might be willing to settle short of breaking Barings, George said. There were simply too many players in on the game.
In England, some who knew Leeson were startled.
``He is a genuinely nice guy, and I'm proud to call him a son-in-law,'' said Alex Sims, Leeson's father-in-law.
``He mixed very easily and got on very well with his peer group. He was an asset to the school,'' said Brian Coulshed, headmaster of Parmiter's school in Watford.
Coulshed remembered one thing about Leeson that didn't add up: After doing well on most exams, he failed his final mathematics test.
by CNB