Ordinary Gweilo

Yesterday’s Sunday Morning Post has a largely sympathetic profile of Nick Leeson, the man who bankrupted Barings Bank 10 years ago.  Apparently he has re-married and is now living on the west coast of Ireland, and is trying to make a living writing books and doing public speaking.  Presumably he also has a PR person doing his best to rescue his reputation by getting positive stories about him published in newspapers.

Unfortunately for him, you simply have to read The Collapse of Barings by Stephen Fay to discover that it’s going to take a lot more than a few sympathetic journalists to restore his reputation.  Though I suppose every little helps, and in this case, Eugene Henderson obviously hasn’t read Fay’s book and uncritically repeats Leeson’s justification for what he did.

Mr Leeson, then 25, had played the market secretly, and disastrously, in a three-year attempt to cover up an initial ₤20,000 trading error by one of his recruits.  He made no personal profit and he never intended it to be otherwise.

Did he really embark on his trading adventures in order to protect an employee who had made a mistake (selling Nikkei futures when she was supposed to be buying them)? 

No. Leeson had already started trading (and losing money) using his 88888 account several weeks before this mistake took place.  He had already lost far money than the ₤20,000 that was lost by his employee.  Then, a few months later he had recovered the losses and could easily have stopped, but he chose to carry on. 

Did he benefit from what he did? 

Well, he earned substantial bonuses that were directly attributable to the fictional profits he reported. His bonus for 1993 was ₤130,000, and had he continued to get away with his deception for a little longer he would have received an even more substantial bonus in early 1995.  Yet, after the collapse of Barings it became clear that the bonuses were grossly inflated by Leeson’s imaginary trading profits (when the bonuses for 1994 were recalculated, the bonus pool fell from ₤100m to less than ₤10m).  So Leeson’s deceptions benefited him (and a large number of other Barings employees).

The other part of his defence is equally disingenuous:

“If there had been barriers to my actions, and more control over what I was doing, I would have stopped doing what I was doing before things got to the stage they did.”

This might make the casual reader believe Leeson was simply trading without his bosses knowing what he was doing.  In fact, he went to extraordinary lengths to cover his tracks, deliberately subverting the system and creating hugely complex (and totally false) transactions to disguise what he was really doing.  Worse, he wasn’t satisfied with making his trades disappear – he wanted to make them appear to be hugely profitable, and remarkably he was able to do exactly that. 

Of course Barings should never have allowed Leeson to be both a trader and in charge of settlements, and of course they should never have believed the huge profits he was reporting, and of course they should have looked more closely at the so-called errors account 88888, but none of that excuses Leeson’s behaviour.

Stephen Fay’s book tells the story of Leeson’s actions in great detail, and attempts to explain why Barings failed to realize what was going on.  It’s a thorough but very readable account of a story that really is stranger than fiction.  None of the main players come out of it well, and the only plausible explanations seem to be greed (everyone wanted to believe what Leeson was telling them because it benefited them) and inter-office politics.

Leeson has also written his own book (Rogue Trader) that was turned into a really terrible movie of the same name. I haven’t read the book, but I have watched the film, and its plot is utterly implausible.  It attempts to demonstrate that Leeson hired a bunch of rookie traders and was forced to cover up for one expensive mistake, and it portrays Barings management as a bunch of upper-class twits.  If that wasn’t self-serving enough, we are asked to feel sorry for Leeson as the Nikkei index moves in the wrong direction and frustrates his brilliant trading.  Yeah, right.

As a film it is flat and almost totally lacking in real drama.  The story is effectively reduced to the gross over-simplification that it was all about Leeson’s bet on the Nikkei, and we are led to believe that if it had gone up rather than down then everything would have been OK for Leeson.  Well, not really.  Anyway, this is portrayed in the film is by showing us what is supposed to be the latest Nikkei index as displayed at the Singapore exchange.  Except that what we see is a large and very simplified display on which the index is always up or down a nice round number.  It is totally and utterly unbelievable – just like Leeson’s rationalisations and explanations for his behaviour.

Read the book, skip the film, and treat anything Nick Leeson says with a healthy dose of scepticism.