Who Is Nick Leeson?

Nick Leeson was a rising young trader at England's Barings Bank in 1995 until he lost $1.3 billion of the bank's money in risky derivatives and unauthorized derivatives trades.

The venerable bank collapsed, and Leeson spent four years in a Singapore prison.

Key Takeaways

  • Leeson lost $1.3 billion of his employer's money, making risky trades in derivatives.
  • His crimes bankrupted Barings, causing its collapse after 230 years in business.
  • 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 billion.
  • Nick Leeson was sentenced to 6 1/2 years in prison by a court in Singapore but was released in 1999.

Early Life and Education

Nicholas William Leeson was born on Feb. 25, 1967, in Watford, Hertfordshire, England, to a plasterer father and nurse mother. Instead of attending college after secondary school, Leeson became a clerk at Coutts bank. He continued to advance in the financial services industry, working in various positions for companies like Morgan Stanley and Barings Bank.

At age 27, Leeson became a star derivatives trader in the Singapore office of Barings Bank, one of Britain's oldest merchant banks. He rose through the ranks, winding up as general manager of the company's Singapore trading division. His job primarily involved arbitrage trading on the Nikkei 250, Tokyo's main index, on behalf of Barings clients.

Notable Deeds

Leeson's career with Barings took off, with him advancing from the trading floor to managing Baring's new Singapore futures operations. A trading superstar, Leeson significantly increased his employer's profits, bringing in millions in the futures market.

Unbeknownst to Barings, there were significant losses. According to Leeson, however, these losses were attributed to his coworker's error, and in an attempt to recover those losses, Leeson made unauthorized and risky trades with customers' money. He hid the losses by falsifying records in a little-used errors account called 88888.

He began relying on a risky "doubling" strategy. Every time he lost money on a trade, he placed a new bet at double the amount of the loss in hopes of recouping it. He dug deeper into the banks' reserves to keep it going, ultimately driving the losses up to $1.3 billion. Within three months, Leeson purchased more than 20,000 futures contracts, which accounted for more than 1/3 of Britain's oldest bank's total losses.

His desperate attempts to make good on his losses came to a crashing halt in early 1995, when the Kobe earthquake hit Japan, and the Nikkei fell sharply. He based his entire strategy on a bet that the Nikkei would rise. For the next few days, he kept betting on a quick turnaround but lost even more of Barings' money.

Crimes

With his plans unraveling and detection imminent, Leeson fled Singapore to avoid prosecution, leaving behind a written confession. He was eventually arrested in Frankfurt, Germany, and later extradited to Singapore to be tried for his crimes. Charged with 11 crimes, he faced more than 14 years in a Singapore prison.

Leeson's initial trading losses were just under $200 million. But that skyrocketed to $1 billion, approximately twice the amount of Barings' available capital, when he made even riskier bets on the direction of futures with hopes of reducing or erasing his losses.

Had he followed his employer's rules, the bulk of his trades would have been cash neutral. In such a strategy, a trader manages an investment portfolio without adding capital to it. Any profits or losses on the trades would belong to the client. Barings' only compensation would have been a commission. Meanwhile, a trader was supposed to make a limited number of proprietary trades on behalf of the bank itself.

In December 1995, Leeson was convicted of fraud and forgery and sentenced to six and a half years in prison. In 1999, he was released and returned to Britain. One who seemingly had it all reentered society homeless, unemployed, divorced, and suffering from colon cancer.

Legacy

Nick Leeson is regarded as the single rogue trader who lost $1.3 billion, causing the collapse of a 230-year-old bank.

The Dutch bank ING bought Barings in 1995, saving it from ruins.

Until 2008, Leeson held the world title for losses due to unauthorized trades. He was eclipsed that year by a trader for Société Générale named Jerome Kerviel, who lost more than $7 billion in a series of unauthorized and falsified trades.

Leeson's case spurred greater attention to internal controls and more careful auditing of trades. One observation was that a trader desperate to recover from losses tends to risk more money to become whole.

Published Works

Leeson defied the odds and, eventually, thrived. He wrote a memoir, aptly called Rogue Trader. The book detailed his life as a trader, including his rise and fall and his employer's resulting collapse. In 1999, a movie of the same title, starring Ewan McGregor, was released.

In 2005, he authored his second book, Back from the Brink, Coping with Stress, which chronicles a series of conversations with psychologist Ivan Terrell and provides strategies for dealing with financial woes, personal trials, illness, and addiction.

Personal Life

After leaving the Singaporean prison, Leeson returned to the United Kingdom. Later, he moved to Ireland, remarried, and joined the celebrity speaker's circuit, where he specialized in speaking about shady financial practices.

In 2001, Leeson enrolled at a university to complete his psychology degree, and in 2004 welcomed a baby with his wife.

His rehabilitation appeared complete in 2005, when he was named commercial manager of Galway Football club, rising to Chief Executive Officer of the club before leaving in 2011.

Today, he is a global business speaker, advising corporate clients on risks, governance structures, and compliance.

Why Did Nick Leeson Create Account 88888?

Nick Leeson created the 88888 to initially hide losses resulting from his coworker's error.

How Much Money Did Nick Leeson Lose?

Nick Leeson's unscrupulous trades resulted in approximately $1.3 billion in losses. He initially lost less than $200 million. However, in an attempt to recover those losses, he exponentially increased them.

Where Is Nick Leeson Today?

Nick Leeson is an international business speaker, conducting conferences and consulting companies and academic institutions on various topics such as risk, compliance, corporate governance, and mental health.

The Bottom Line

History will recount Nick Leeson as the person who singlehandedly took down England's largest bank. His financial savviness helped his rise to power, yet his fraud and deceitfulness destroyed it. However, because of him, banks are better equipped with internal controls to thwart similar threats. From his experience, he now helps corporations and higher academic institutions recognize risks and examine governance structures.

Article Sources

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  1. VantagePoint Trading. "How Rogue Trader Nick Leeson Bought Down Britain's Oldest Bank."

  2. Next Finance. "How Nick Leeson caused the collapse of Barings Bank."

  3. The New York Times. "International Business; Singapore Sentences Leeson to 6 1/2 Years in Prison."

  4. The Guardian. "Barings Collapse at 20."

  5. Nick Leeson. "Biography."

  6. Nick Leeson. "Biography."

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