Baring Bank Case Study: Presented by

BARING BANK CASE STUDY
Presented by :
M MANIMALA
JILU JAMES
JISHNU SURENDRAN
JERIN JACOB
LAKSHMI M S
HARIDEV H
JOHN MOHAN 1
KRISHNAPRIYA G NAIR
JITHIN JAYARAJ
NAME AND PROFILE
Name : Baring Bank

Type : Merchant Banking Firm
Founded : 1762
Founder : Sir Francis Baring
Headquartered : London
Fate : Collapsed due to bankruptcy
Ceased operations : February 26, 1995
2
KEY TAKEAWAYS
 Barings Bank was a UK-based merchant banking firm that failed after a trader
named Nick Leeson engaged in a series of unauthorized and risky trades that went
sour in 1995.
 Barings, having lost over one billion dollars (more than twice its available capital)
went bankrupt.
 The bank's assets were subsequently acquired by the Dutch ING Group, forming
ING Barings.
3
ABOUT SCAM

 Founded in 1762
 Barings Bank was a United Kingdom institution with worldwide reach.
 In 1989, Nick Leeson was hired at Barings
 He was quickly promoted to the trading floor and appointed manager in
Singapore
 where he traded on the Singapore International Monetary Exchange (SIMEX).
 Leeson was an aggressive trader, making large profits in speculative trading.
 His profits constituted almost 10% of Barings' total profits.
 He had developed a reputation for expertise, for near-infallibility, and his

4
superiors in London gave him little supervision.

• In July 1992, a new Barings employee suffered a small loss on Leeson's watch.
• He hid the loss in an error account.
• Leeson attempted to make back the loss through speculative trading
• But this led to even bigger losses, which again were hidden in this account.
• He kept doubling up his bets in an attempt to get out from under the losses.
• Leeson took out a short-term, highly leveraged bet on the Nikkei index in Japan.
• At the same time, a severe earthquake in Kobe, Japan sent the index plummeting
• Barings, a 233-year old bank, collapsed overnight and was bought by ING for l euro
• Leeson fled to Malaysia, Thailand, and finally to Germany, where he was arrested
and extradited to Singapore. 5

• Leeson was sentenced to six and a half years of prison in Singapore
• But only served four years due a diagnosis of colon cancer, which he ultimately
survived.
• In 1996, and while in prison, Nick Leeson released his autobiography entitled,
"Rogue Trader: How I Brought Down Barings Bank and Shook the Financial
World,"
• The book was later made into a fictionalized film starring Ewan McGregor as
Leeson.
6
YEAR
Time Line :
Year
1989-07 Nick Leeson joins Barings in London as a settlements
clerk from Morgan Stanley
1992-04 • Nick Leeson seconded to Barings Securities

Singapore as Derivatives Operations Manager.
• He passes the Institute of Banking and Finance's
Futures Trading Test in June 1992, starts trading in
July 1992, opens the 88888 account in July and books
losses to this account by September 1992.
1992-12-31 Acct 88888 - £2m losses
1993-12-31 Acct 88888 - £23m losses
1994-01-01 Coopers-Lybrand takes over from Deloitte-Touche as

Barings Futures Singapore auditors
7
1994-08-01 Barings Bank Internal Audit report warning of non-
segregated duties in Singapore
1994-12-31 Acct 88888 - £208m losses
1995-01-17 Kobe earthquake, Nikkei225 drops more than 1000

points on the day, ultimately bottoms out 3 months later
5000 points down
1995-02-23 • Nick Leeson resigns and escapes from Singapore.

• Irregularities discovered at Barings Bank, Simex
futures and options positions not closed out
1995-02-25 BBC reports Bank of England not successful finding a

buyer for Barings
1995-02-26 Barings Bank defaults losing £830m
1995-03-02 Nick Leeson arrested at Frankfurt Airport
1995-03-05 ING buys Barings for £1 8

• The bank collapsed in 1995 after suffering losses of £827 million (£1.6 billion in
2019) resulting from fraudulent investments, primarily in futures contracts,
conducted by its employee Nick Leeson, working at its office in Singapore.
9
PARTIES INVOLVED

 Nikkei Index
 Nick Lesson

ANY OTHER COMPANIES RELATED TO SCAM

 Nikkei Index

10
Nick Leeson
• Nicholas William Leeson born on 25 February 1967 Watford, Hertfordshire and

attended Parmiter's School in nearby Garston.
• At the age of 27, Leeson became a star derivatives trader
• Leeson lost $1.3 billion of his employer's money-making risky trades in derivatives.
• His misadventure forced banks to reassess their internal controls and trade auditing
procedures
• Leeson's record trading loss held until 2008 when a French trader blew through $8 11
billion.
NEWS BY MEDIA ON THAT CASE

Cnbc- keypoints:
 The collapse of Barings Bank in February 1995 was caused by colossal losses
incurred by a single rogue trader.
 Nick Leeson, the bank's then 28-year-old head of derivatives in Singapore, gambled
more than $1 billion in unhedged, unauthorized speculative trades, eliminating the
venerable merchant bank's cash reserves.
12
OPINION AND SUGGESTION

• Management wanted to enter a new market but Bank was not prepared for
the activity on a derivative market .
• Strict regulations are needed in order to avoid the next Baring.
• A trader cannot be left alone to make decisions on trades unless authorized by
at least one senior official.
• Audit and reconciliation of trade gains and losses should be a daily job for a
bank.
• A strong surveillance team independent of operations needs to be active in
every bank.
13
• No trader should be allowed to be operational in both the front desk and
back office.
• To gain confidence , Senior Management should time to time test the
knowledge in trading techniques and financial markets of its traders.
• All the declarations should be audited at least twice before it gets submitted
to the regulators.
• Lack of a clear reporting line
• Staff should have received internal memos.
14
REMEDIES OUR POINT OF VIEW

• Document breaches by senior bank staff, even when apparently begin
• Alert senior bank regulator personally
• Request further documentation of senior bank staff – a hint to management
• Request further documentation of bank board of directors – a strong hint to the
board
15
CONCLUSION

 One lesson: “ A trader desperate to recoup losses tends to gamble more, and lose
more”
 Fall of Baring was a wake- up call for financial institutions all over the
world .
 The trading and back office functions were not delineated in Barings leading
to its collapse.
 Strict regulations are needed in order to avoid the next Baring.

16
THANK YOU
17

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BARING BANK CASE STUDY

Name : Baring Bank

 Barings Bank was a United Kingdom institution with worldwide reach.

 In 1989, Nick Leeson was hired at Barings

 He was quickly promoted to the trading floor and appointed manager in

 where he traded on the Singapore International Monetary Exchange (SIMEX).

 Leeson was an aggressive trader, making large profits in speculative trading.

 His profits constituted almost 10% of Barings' total profits.

 He had developed a reputation for expertise, for near-infallibility, and his

superiors in London gave him little supervision.

• He hid the loss in an error account.

• Leeson attempted to make back the loss through speculative trading

and extradited to Singapore. 5

1992-04 • Nick Leeson seconded to Barings Securities

1992-12-31 Acct 88888 - £2m losses

1993-12-31 Acct 88888 - £23m losses

1994-01-01 Coopers-Lybrand takes over from Deloitte-Touche as

1994-12-31 Acct 88888 - £208m losses

1995-01-17 Kobe earthquake, Nikkei225 drops more than 1000

1995-02-23 • Nick Leeson resigns and escapes from Singapore.

1995-02-25 BBC reports Bank of England not successful finding a

1995-02-26 Barings Bank defaults losing £830m

1995-03-02 Nick Leeson arrested at Frankfurt Airport

1995-03-05 ING buys Barings for £1 8

2019) resulting from fraudulent investments, primarily in futures contracts,

conducted by its employee Nick Leeson, working at its office in Singapore.

ANY OTHER COMPANIES RELATED TO SCAM

• Nicholas William Leeson born on 25 February 1967 Watford, Hertfordshire and

incurred by a single rogue trader.

more than $1 billion in unhedged, unauthorized speculative trades, eliminating the

venerable merchant bank's cash reserves.

• To gain confidence , Senior Management should time to time test the

knowledge in trading techniques and financial markets of its traders.

• Lack of a clear reporting line

• Staff should have received internal memos.

• Document breaches by senior bank staff, even when apparently begin

• Alert senior bank regulator personally

• Request further documentation of senior bank staff – a hint to management

• Request further documentation of bank board of directors – a strong hint to the

 Strict regulations are needed in order to avoid the next Baring.

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