Nick Leeson (full names-Nicholas William Leeson) was the “rogue trader” who caused the catastrophic collapse of the United Kingdom’s then oldest merchant bank, Barings Bank in February 1995. I recall the sensation and hoopla at the time as reports that a twenty-nine year old trader had brought down a 233 year old eminent merchant bank founded in 1762 went across the global financial markets. I headed the financial institutions business of a Nigerian bank at the time and I recall our shock (and perverse excitement?) as my then deputy CEO and I pondered the dimensions of the affair and possible implications for our institution.
Barings Bank was a distinguished merchant bank based in London. It was at the time the second oldest merchant bank in the world, owned by a Germanic family of bankers and merchants in the UK. Nick Leeson on the other hand was a young derivatives trader who was sent to Singapore in 1992 to head futures trading as general manager in charge of Barings trading operations on the Singapore International Monetary Exchange (SIMEX). Over the next three years, Leeson ran up unauthorized and undisclosed trading losses amounting to GBP 827million by February 26 1995 when the bank was declared insolvent. The losses reportedly started small, from a genuine error by another employee of just GBP20,000 who had sold rather than buy securities as instructed by a client; reaching GBP2million by the end of 1992; and GBP208million by the end of 1994; and GBP 827million by February 1995. Nick Leeson had “hidden” these losses in an illegal “error account” until they reached four times the bank’s capital; and fled when his activities were exposed leaving behind a simple but tragic note “I’m sorry”.
Leeson had enjoyed a remarkable rise until his earth-shaking fall in February 1995. He had only gotten a high school education before joining the “Queens Bank”, Coutts and Co and then head-hunted to Morgan Stanley before he joined Barings in London in 1989. He had apparently been a star until he was sent to Singapore where just three years later, both he and Barings came crashing down. He was repatriated back to Singapore as he fled to Malaysia, Thailand and Germany where he was tried and jailed for his crimes.
You may then wonder why the board of the Convention on Business Integrity/The Integrity Organisation, which I chair, chose Nick Leeson as key note speaker at this year’s 5th Annual Christopher Kolade Lecture on Business Integrity held last Thursday June 29th 2017 in Lagos! Nick Leeson spoke to the theme, “Prevention is Better than Cure” a theme that resonates with CBi’s focus on strategic and preventive approaches in the fight against the cancer of corruption that continues to subvert Nigeria’s development and social stability. He spoke about the lax risk management in Barings in Singapore; about several people-internal auditors, external auditors, supervisors, colleagues, regulators and others within and outside Barings who for three years failed to ask the simple questions that might have led to earlier detection of his fraudulent schemes; and others who simply lacked the business understanding that would have enabled them raise an alarm against his unauthorized “error” account. He spoke about the psychological urges and fear of failure that led him along a three-year doomed path of denial and deception that prevented him from doing the sensible thing-stopping his fervent digging of a larger and deeper hole, instead worsening his and the institution’s fate by continuing to incur larger trading losses. Yet he accepted full responsibility for his actions and indeed served time in prison for them.
I had a second opportunity to listen to Nick Leeson in Abuja the next morning as co-panelists on a CBi/ACCA/CIBN/PACAC (Presidential Advisory Committee on Anti-Corruption) discussion on financial system stability. In a private conversation, I asked Nick whether he ever reflected on how his life’s journey may have been different had he decided to disclose the original loss of GBP20,000 (which by the way was not his fault) instead of hiding and worsening them? I could understand his response-it was a pointless exercise and could only perpetuate feelings of regret, powerlessness and maybe suicide. Instead Nick Leeson accepted his fate, served his time in jail, wrote two books about his experiences (“Rogue Trader: How I Brought Down Barings Bank and Shook the Financial World” (1996) while in prison and “Back from the Brink: Coping with Stress” (2005). “Rogue Trader” was made into a film in 1999 and his story formed the focus of a TV Documentary in 1996.
The event in Lagos was very graciously attended by Lagos State Deputy Governor Dr. Oluranti Adebule and Acting President Yemi Osinbajo, a co-founder and former Chairman of CBi/Integrity who remarked that at least Nick Leeson owned up to his actions and has tried to make some good out of the tragedy of the collapse of Barings Bank. He compared Leeson’s post-crises actions to those individuals responsible for the failure of many Nigerian banks, none of whom could be found to speak honestly about their roles in those matters! The broader context was however Nigeria’s anti-corruption effort and the message (which our honoree, Dr. Christopher Kolade loudly emphasized) that it was probably more effective to focus on preventive approaches to fighting Nigeria’s hydra-headed monster of corruption. The other implications may be for our banks, financial institutions and other corporates-that poor governance and lax risk management eventually exact a high, even calamitous price on institutions that perpetrate them!
- This article was first published on Wednesday July 5, 2017