Barings Bank Collapse - February 1995

Barings Bank Collapse – February 1995

25 years ago (on 26^th February 1995) Barings Bank, the oldest merchant bank in London, collapsed after its chief trader in Singapore, Nick Leeson lost millions in unauthorised transactions.

Founded as far back as 1762, Barings Bank was among the largest, and was considered to be one of the most stable banks in the world. In 1995 its chief trader in Singapore, Nick Leeson, was found to be a rogue trader making fraudulent, unauthorised and totally speculative moves, losing around £625m.

                 

However from 1992, he was amazingly successful making numerous trades, albeit unauthorised, that made large profits for Barings, accounting for 10% of the bank’s annual profit. But soon enough his judgment became suspect and he started to use an error account to hide the losses that were being accrued.

From a deficit of just £2m in 1992, to £23m in late 1993, by 1994 the amount had spiralled to close on £208m. Every time he lost money, he used a doubling up strategy of further investments in an attempt to get both himself and the bank out of trouble.

The beginning of the end came in mid-January 1995 when Leeson made 2 transactions on the Singapore and Tokyo stock markets essentially hoping that the Japanese market would not move overnight. 

But when the Kobe earthquake hit in the early hours of 17 January, Asian markets plummeted. Leeson reacted making a series of ultra high risk trades in the forlorn hope that the Nikkei Stock Average would recover, but to no avail.

Leeson fled Singapore on 23 February and after a failed bailout attempt, Barings Bank was declared insolvent on 26^th February 1995.

Leeson was finally arrested in Frankfurt in November 1995 and was sentenced to a 6 and a half years jail term in Singapore.