Page 269 - A Banker Down the Rabbit Hole

LONDON, Feb. 27
At the epicenter of Sunday night's spectacular collapse of a leading British
investment bank stands a 28-year-old trader named Nicholas W. Leeson,
a Briton who in the course of a month put $29 billion of the firm's money
on the line and lost more than a billion of it.

How could a single rogue trader bring down an otherwise profitable and
well-regarded institution, unnerving financial markets around the world
in the process? The loss, discovered late last week, was enough to sink
Barings, despite intensive efforts by the Bank of England to arrange a
rescue package over the weekend.

Mr. Leeson, who had succeeded in the arcane business of derivatives
despite having failed his high-school-level math exams, disappeared from
his post in Singapore last Thursday, just before the firm discovered the
huge loss. He was last reported to be in Kuala Lumpur.

Perhaps most important, nobody at Barings or at the Singapore
International Monetary Exchange, where most of the trades were carried
out, or at the Bank of England, Barings' primary regulator, ever questioned
Mr. Leeson as he built the positions during a period of almost a month.

First, a bet that Japanese stock prices would rise -- involved the purchase
of futures contracts representing $7 billion worth of shares. The other
was a bet that interest rates would rise, and it took the form of contracts
representing $22 billion worth of Japanese government bonds and
currency investments.

Stocks in particular went badly wrong for Mr. Leeson as Japanese shares
fell sharply last week. But the rate-sensitive investment lost money, too.

Up till last week, Mr. Leeson had no reputation within Barings as a risk
taker. Coming from a lower-middle-class family north of London, he had

266 | A Banker down the Rabbit Hole