What Was Barings Bank?

Barings Banks was a British merchant bank that collapsed in 1995 after one of its traders, 28-yeaer-old Nick Leeson operating in its Singapore office, lost $1.3 billion in unauthorized trades.

Barings Bank

Founded in 1762, Barings was among the largest and most stable banks in the world. However, thanks to unauthorized speculation in futures contracts and other speculative dealings, it ceased operations on February 26, 1995. The direct cause was its inability to meet its cash requirements following those unauthorized trades. Even efforts by the Bank of England to arrange a rescue package could not avert the inevitable collapse.

Leeson's reputation since then was one of a rogue trader, operating without supervision or oversight. At the time of the loss, he was assigned to an arbitrage trade, buying and selling Nikkei 225 futures contract in both the Osaka Securities Exchange in Japan and the Singapore International Monetary Exchange, in Singapore. However, instead of initiating simultaneous trades to exploit small differences in pricing between the two markets, he held his contracts, hoping to make a larger profit by betting on directional moves of the underlying index.

Making matters worse, Leeson hid is losses with accounting tricks. Had the bank discovered this earlier, it would have taken large but not devastating losses and remained solvent. Unfortunately, the firm was declared insolvent less than a week after Leeson's trading losses were finally discovered. After this episode, Leeson was arrested and sentenced to six and one-half years in a Singapore prison. However, he was released in 1999 after a diagnosis of colon cancer.

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 went sour in 1995.
  • Barings, having lost over one billion dollars (more than twice its available capital) went bankrupt. Following the trading debacle, Leeson wrote his aptly titled Rogue Trader while serving time in a Singapore prison. 
  • The bank's assets were subsequently acquired by the Dutch ING Groep, forming ING Barings. This subsidiary was later sold to ABN Amro in 2001.

Acquisition

The Dutch bank ING Group, purchased Barings Bank in 1995 for the nominal sum of £1.00, assuming all of Barings' liabilities and forming the subsidiary ING Barings. A few years later, in 2001, ING sold the U.S.-based operations to another Dutch bank, ABN Amro, for $275 million. ING's European banking division absorbed the rest of ING Barings.

The Barings name lived for a while in only in two divisions, both of which were subsidiaries of other companies. Baring Asset Management (BAM) is now part of MassMutual. BAM's Financial Services Group became part of Northern Trust, until taken private in 2016.

Hollywood

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," in which he detailed his acts leading to the collapse of Barings. The book was later made into a fictionalized film starring Ewan McGregor as Leeson.