Baring Case Study
Barings Bank Case Study
1. Nick Lessons sold numerous short straddles for each long futures contract he bought because he need the cash created by the premiums he received by selling the short straddles. Lesson’s needed large sums of cash to fund his margin calls, which forced him to sell disproportionate numbers of short straddles for each long future position he took.
2. The doubling strategy allowed Leeson’s the opportunity to recoup losses suffered , which required him to double his bets in the event of a losses tied to the 88888 Account, so that any slight recovery in Japanese stocks would bring him back to a break-even point. Specifically, Lesson’s had bet that the Japanese Stock and interests rates would rise precisely the time the Japanese Market was sinking (shares prices and interests rates declining). Rather than selling to neutralize his positions, Leeson’s viewed every decline in the SIMEX and OSE markets as a buying opportunity. Leeson attempted to recoup losses by buying long positions in the Nikkei 225 futures contracts and short positions in Japanese government bond futures.
3. No, senior management deserves considerable, if not equal, responsibility for the decline and failure of Barings Bank, as they directly ignored and downplayed the obvious indications of foul-play by Leesons, in regards to the enormity and consistency of his profitability, which were supposed to be the single result of arbitraging (essential no risk; low exposure) instrumental trading, In addition, Leeson’s supervisor ignored internal auditing reports, in favor of his continued posting profits, as well as failure to have Leeson substantiate his demands for cash to satisfy his margin calls, as well as consideration for the misleading explanations he provided to justify his cash needs. Furthermore, senior management failed to facilitate transparency in his transactions and day to day reporting, as they allowed Leeson to manage both back and front house
1. Nick Lessons sold numerous short straddles for each long futures contract he bought because he need the cash created by the premiums he received by selling the short straddles. Lesson’s needed large sums of cash to fund his margin calls, which forced him to sell disproportionate numbers of short straddles for each long future position he took.
2. The doubling strategy allowed Leeson’s the opportunity to recoup losses suffered , which required him to double his bets in the event of a losses tied to the 88888 Account, so that any slight recovery in Japanese stocks would bring him back to a break-even point. Specifically, Lesson’s had bet that the Japanese Stock and interests rates would rise precisely the time the Japanese Market was sinking (shares prices and interests rates declining). Rather than selling to neutralize his positions, Leeson’s viewed every decline in the SIMEX and OSE markets as a buying opportunity. Leeson attempted to recoup losses by buying long positions in the Nikkei 225 futures contracts and short positions in Japanese government bond futures.
3. No, senior management deserves considerable, if not equal, responsibility for the decline and failure of Barings Bank, as they directly ignored and downplayed the obvious indications of foul-play by Leesons, in regards to the enormity and consistency of his profitability, which were supposed to be the single result of arbitraging (essential no risk; low exposure) instrumental trading, In addition, Leeson’s supervisor ignored internal auditing reports, in favor of his continued posting profits, as well as failure to have Leeson substantiate his demands for cash to satisfy his margin calls, as well as consideration for the misleading explanations he provided to justify his cash needs. Furthermore, senior management failed to facilitate transparency in his transactions and day to day reporting, as they allowed Leeson to manage both back and front house