Barings bank


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Barings bank

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Barings bank

  1. 1. How Nicholas William Leeson cripples the bank
  2. 2. • Leason started his carrearin Coutts bank•Then he moved toMorgan Stanley in 1987•In1989 Leeson joined thesettlements department ofBarings•Soon after he applied for atransfer to Jakarta, gotpromoted to GeneralManager Singapore in April1992
  3. 3. Leverage on the Arbitrage opportunities on similar equityderivatives between (SIMEX) and Osaka stock exchange(OSE)
  4. 4. 1. The use of various financial instruments or borrowedcapital, such as margin, to increase the potential return ofan investment.2. The amount of debt used to finance a firms assets. Afirm with significantly more debt than equity is consideredto be highly leveraged.Leverage is most commonly used in real estate transactionsthrough the use of mortgages to purchase a home.
  5. 5. The simultaneous purchase and sale of an asset in order toprofit from a difference in the price. It is a trade that profits by exploiting price differences of identical or similar financial instruments, on different markets or in different forms.Arbitrage exists as a result of market inefficiencies; it provides a mechanism to ensure prices do not deviate substantially from fair value for long periods of time
  6. 6.  Leason acted beyond his Authority as he traded in options and overnight un-headged positions  He traded on derivatives that were of different types and in some cases were of mismatched amountsDerivatives: is security whoseprice is dependent upon orderived from one or more Hedge: Making an investment tounderlying assets reduce the risk of adverse price movements in an asset.
  7. 7.  Leeson was able conceal all his trading activity because in his capacity of GM he was made responsible for both the trading and back office staff. He was given authority to hire traders and back office staff He used an error account 88888 to conceal the trading losses, and made cross trades to deceive the management.
  8. 8. •Leeson gave instructions to the settlements staff at BFS tobreak down the total number of contracts into severaldifferent trades and alter the trade prices in such a way thatall profits were credited to the accoutns 92000, 98007 and98008 while losses were charged to account 88888•All transactions appeared to be genuine and within the rulesof the exchange. All the transactions appeared to begenuine and within the rule of the exchange•In effect, leeson bought and sold to himself and in doing sodid not hedge any of the banks market risk , but went onaccumulating substantial open positions
  9. 9. Leeson used the account 88888 to execute all the unauthorized trade The income statement of the account represented the actual results of Leeson trading activities. How ever this account went un noticed by the Barings Management in London since it mentioned only the Margin amounts
  10. 10. Leason faced a major setback on1/17/1995 due to an earthquake inJapan He had positions ranging from 18500 to 20000, The Nikkei 225 which was trading at 19350 started to decline following high selling pressure and ended that week at 18950
  11. 11. Result of Leesons Trading Activities
  12. 12. Does Crime Pay ?!What’s life after MEGA fraud ?
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