Barings Bank Collapse

ANURAG CHATERJEE-6
KHILESH MAJITHIA-30
PUSHKAL MITRA-31
SHRIKANT ZANWAR-56

Introduction
Founded in 1762 by Sir Francis Baring
The oldest mercantile bank in London until its

collapse in 1995
Nick Leeson in 1990s lost $1.4 billion speculating

primarily on futures contracts.

The Collapse
Barings was brought to its knees by Nick Leeson in a

Singapore office
He was employed by Barings to profit from low risk

arbitrage opportunities between derivatives contracts

on the SIMEX and Japans Osaka Exchange
Leeson left a $1.4 billion hole in Barings balance

sheet due to his unauthorized derivatives

speculation,causing the 233-year-old banks demise

Leesons Activities
Was supposed to be arbitraging
Instead of hedging, gambled on the future direction of the Japanese markets
Had long futures positions on OSE
Was not short on SIMEX
Kobe earthquake of January 17, 1995 led to the crash of Nikkei and his investments
Used account no. 88888 for unauthorized speculation to cover losses
Ended with huge losses(GBP 827 MM)
The activities of Nick Leeson led to the fall of Barings Leeson after being arrested

for his activities

Managements failure to control Leeson

Effectively let Leeson settle his own trades by putting

him in charge of both the dealing desk and the back

office
He had the final say on

payments,
ingoing and outgoing confirmations and contracts
reconciliation statements
accounting entries
position reports Leeson was considered perfectly placed to
relay false information back to London

Recommendations
A number of important lessons for senior bank

managers including the importance of internal

controls & audit processes
We think the following should be avoided by banks

Lack of internal checks and balances

Lack of understanding of the business
Poor supervision of employees
Lack of a clear reporting line

Recommendations & Conclusion

Management wanted to enter a new market but Bank

was not prepared for the activity on a derivate

market
Stronger competition search additional profits gave
so much control only to the one person
Derivates in recent years a powerful tool in the
hands of traders
Strict regulations are needed in order to avoid the
next Barings