Barings Bank Collapses
The 26th of February 1995 AD
Barings was the Queen’s bank; Princess Diana was related to the Barings family; this was the archetypal blue blood institution, still with a family member - Peter Baring - as Chairman. It had been in existence since 1762, though not always entirely honourably – it financed Napoleon’s ambitions by facilitating the Louisiana Purchase .
A trader in the Singapore office, Nick Leeson, was at one time generating perhaps 10 per cent of Barings’ profits, and seemed to have discovered a magical money making formula. But he also discovered that when things went wrong, he could hide his losses in a secret bank account, hoping to sort the problems out later. In January 1995 his hidden trading went horribly wrong: he gambled on the Japanese Nikkei index rising, not hedging his trades in order to maximise potential gains; the Nikkei continued south, and when a huge earthquake hit Kobe on January 17 1995 it plummeted further.
The losses Nick Leeson had accumulated amounted to some £800 million, more than the reserves and the capital of Barings Bank. Eventually he fled Singapore on February 23, leaving a note saying he was sorry, which probably made those left to sort out the situation feel much better about what he had done. No rescue was feasible, though the Bank of England made a vain attempt to arrange one.
On February 26 1995 Barings was declared insolvent, and administrators were brought in to run the business, or what was left of it. Eventually the Dutch company IMG bought the noble bank for the princely sum of £1.
Of course it couldn’t happen now. A great bank brought to its knees by a lack of internal controls and risk monitoring, and by foolish speculations in derivatives markets........
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