Barings Bank
Barings Bank & the “Rogue Trader”
Founded in 1762, Barings Bank (previously known as Baring Brothers & Co.) was the oldest merchant banking company in England. Barings collapsed on February 26, 1995 as the result of the activities of one of its traders, Nick Leeson, who lost $1.4 billion by investing in the Singapore International Monetary Exchange (SIMEX) with primarily derivative securities. This was actually the second time the bank had been faced with bankruptcy.
Following the collapse, Barings was purchased by the Dutch bank/insurance company ING (for the nominal sum of one pound) and today no longer exists as a corporate entity; however, the Baring family’s name lives on in Baring Asset Management. An autobiography of Leeson and the events leading up to the collapse of Barings were dramatized in the movie “Rogue Trader.”
The Barings collapse confirmed that internal controls at Barings were clearly insufficient to detect what was taking place with Leeson’s derivatives trades. “Look at what happened to Baring Brothers Bank when they turned loose that idiot, Nick Leeson, to do his own thing in the Far East financial markets. He lost so much money speculating in yen that he brought down the whole bank before the top command even knew what was happening.” (William Mcdonald Wallace, 1998) While initial accounts cantered on the fraudulent activities of Leeson, and evidence suggests that Leeson was in fact engaged in highly speculative transactions and deliberately tried to deceive his superiors, his actions were not the only reason for the group's failure. Totally inadequate internal communications, controls, and channels of accountability, as well as insufficient regulatory oversight, compounded these findings by UK regulators as did a lack of communication between regulators in the United Kingdom, Japan, and Singapore.
The most glaring aspect of the lack of internal communication is that it was common knowledge on the futures markets that Barings was building
Founded in 1762, Barings Bank (previously known as Baring Brothers & Co.) was the oldest merchant banking company in England. Barings collapsed on February 26, 1995 as the result of the activities of one of its traders, Nick Leeson, who lost $1.4 billion by investing in the Singapore International Monetary Exchange (SIMEX) with primarily derivative securities. This was actually the second time the bank had been faced with bankruptcy.
Following the collapse, Barings was purchased by the Dutch bank/insurance company ING (for the nominal sum of one pound) and today no longer exists as a corporate entity; however, the Baring family’s name lives on in Baring Asset Management. An autobiography of Leeson and the events leading up to the collapse of Barings were dramatized in the movie “Rogue Trader.”
The Barings collapse confirmed that internal controls at Barings were clearly insufficient to detect what was taking place with Leeson’s derivatives trades. “Look at what happened to Baring Brothers Bank when they turned loose that idiot, Nick Leeson, to do his own thing in the Far East financial markets. He lost so much money speculating in yen that he brought down the whole bank before the top command even knew what was happening.” (William Mcdonald Wallace, 1998) While initial accounts cantered on the fraudulent activities of Leeson, and evidence suggests that Leeson was in fact engaged in highly speculative transactions and deliberately tried to deceive his superiors, his actions were not the only reason for the group's failure. Totally inadequate internal communications, controls, and channels of accountability, as well as insufficient regulatory oversight, compounded these findings by UK regulators as did a lack of communication between regulators in the United Kingdom, Japan, and Singapore.
The most glaring aspect of the lack of internal communication is that it was common knowledge on the futures markets that Barings was building