Who is Nick Leeson
Nick Leeson, a former manager with England's Barings Bank — the first investment bank founded in England — became a rogue trader while heading up the company's Singapore division in the early 1990s. Leeson was a derivatives trader who had risen through the ranks of Barings by age 28 to head its operations on the Singapore International Monetary Exchange (SIMEX). After originally earning massive profits for Barings via several unauthorized trades in 1992, Leeson eventually lost over $1 billion of the company's capital while hiding the losses from his superiors in a little-used errors account called 88888.
BREAKING DOWN Nick Leeson
Most of Leeson's rogue trades occurred in the futures market, where his losses multiplied quickly in the final weeks before he fled his office. Leeson was primarily trading futures on the Nikkei 250, the main Tokyo index, on behalf of clients. Most of his business should have been cash neutral, a strategy where an investor manages an investment portfolio without adding capital. In Leeson's case, if money was made or lost on the trades it would have belonged to the clients — Barings' only compensation on the trades should have been a commission. Only a small amount of the trades were meant to be proprietary, or on behalf of the bank itself.
However, Leeson was secretly using the bank’s money to bet on the market in an attempt to recoup his trading losses. By late 1994, Leeson was sitting on losses of £208 million. His hopes to win the money back were dashed in early 1995 when the Kobe earthquake hit Japan and the Nikkei, which he was betting would recover, fell sharply.
Leeson's Life After Barings
Leeson fled Singapore when he realized the magnitude of his losses, but eventually he was arrested in Germany. He served six years in a Singapore prison. A week after his trading losses of $1 billion (more than twice its available capital) were discovered Barings was declared insolvent. Following the trading debacle, Leeson wrote his aptly titled Rogue Trader while serving time in a Singapore prison. In 1999, the book was made into a film of the same name.
Many lessons were learned about internal controls and trade auditing as a result of Mr. Leeson's rogue trading. As has been observed before, a trader trying to hide losses tends to risk more in an attempt to right the initial wrongs. Leeson's trading losses were originally just under $200 million, but they skyrocketed to over $1 billion when he made a risky futures bet in the hopes of evening out prior losses.
Up until 2008, Leeson held the world title for losses due to unrestricted trades, but he was eclipsed that year when French bank Société Générale announced that a rogue trader, Jerome Kerviel, had lost more than $7 billion by conducting a series of unauthorized and false trades. Today, Leeson, among other pursuits, is active on the keynote and after-dinner speaking circuit where he advises companies about risk and corporate responsibility.