Barings bank

1. How Nicholas William Leeson cripples the bank

2. • Leason started his carrear
in Coutts bank
•Then he moved to
Morgan Stanley in 1987
•In1989 Leeson joined the
settlements department of
Barings
•Soon after he applied for a
transfer to Jakarta, got
promoted to General
Manager Singapore in April
1992

3. Leverage on the Arbitrage
opportunities on similar equity
derivatives between (SIMEX) and
Osaka stock exchange(OSE)

4. 1. The use of various financial instruments or borrowed
capital, such as margin, to increase the potential return of
an investment.
2. The amount of debt used to finance a firm's assets. A
firm with significantly more debt than equity is considered
to be highly leveraged.
Leverage is most commonly used in real estate transactions
through the use of mortgages to purchase a home.

5. The simultaneous purchase and sale of an asset in order to
profit 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

8.  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
amounts
Derivatives: is security whose
price is dependent upon or
derived from one or more Hedge: Making an investment to
underlying assets reduce the risk of adverse price
movements in an asset.

9.  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.

10. •Leeson gave instructions to the settlements staff at BFS to
break down the total number of contracts into several
different trades and alter the trade prices in such a way that
all profits were credited to the accoutns 92000, 98007 and
98008 while losses were charged to account 88888
•All transactions appeared to be genuine and within the rules
of the exchange. All the transactions appeared to be
genuine and within the rule of the exchange
•In effect, leeson bought and sold to himself and in doing so
did not hedge any of the banks market risk , but went on
accumulating substantial open positions

12. 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

13. Leason faced a major setback on
1/17/1995 due to an earthquake in
Japan
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

17. Result of Leesons Trading Activities

19. Does Crime Pay ?!
What’s life after MEGA fraud ?