Cold Open

It’s March 2nd, 1995 at the Frankfurt International Airport in Germany.

28-year-old financial trader Nick Leeson gazes out of the window of the plane as it touches down on the runway. This stop in Germany is supposed to be a layover, just a brief stop on the trip from Singapore back to London. But as the plane slowly arrives at the gate, Nick can see a small group of German police officers waiting on the tarmac. He shares an anxious look with his wife Lisa, who’s sitting beside him. They both know who the police officers are looking for.

For the last three years, Nick has been working as a general manager for Barings Bank, overseeing futures trades on behalf of clients in Singapore and Japan. At least, that’s what Barings thought Nick was doing.

In actuality, Nick was making his own trades, using the bank’s money on high risk, high reward bets - and losing millions in the process.

Up until now, he’s been able to hide these losses with accounting tricks, making sure that the higher-ups never caught on to what he was doing. But this year, after accruing the equivalent of over $1 billion in losses, the bank has finally discovered the operation. And now, Nick and his wife are on the run.

As the airplane slowly taxis to a stop at the gate, Nick and Lisa don’t make any sudden attempt to escape. They simply grab their luggage from the overhead lockers and politely get in line with the rest of the passengers to disembark.

The German police officers spot Lisa first. As she steps down onto the tarmac, they approach her and request her passport. And just as they begin asking about her husband’s whereabouts, Nick quietly comes up beside her, and tells the police that it’s him they’re looking for.

As the rest of the plane’s passengers look on with intense curiosity, Nick and his wife follow the police to a van, climb in, and are taken away.

For over two centuries, Barings Bank held a reputation as a financial institution customers could rely on. But in a few short years, Nick Leeson undid all that. A combination of ignorance, blind confidence, and a lack of oversight allowed Nick to operate with impunity - and cost Barings Bank not only its reputation, but its entire existence when it was forced to cease operations on February 26th, 1995.

Introduction

From Noiser and Airship, I’m Lindsay Graham and this is History Daily.

History is made every day. On this podcast—every day—we tell the true stories of the people and events that shaped our world.

Today is February 26th, 1995: The Barings Bank Collapse.

Act One: Place Your Bets

It’s March of 1992 at the Barings Bank offices in London, England, three years before Nick Leeson’s arrest in Frankfurt.

Nick sits working at his desk. He’s been at Barings for three years now and has become a well-respected member of the team. During his relatively short time at the bank, Nick has shown himself to be especially adept at dealing with Barings’ global operations. Thanks to him, the bank’s once-messy offshoot in Indonesia is now a well-respected enterprise in and of itself. But Nick isn’t interested in resting on his laurels. The 25-year-old wants a new challenge.

Specifically, he wants to help Barings Bank expand its activity in the Singapore market. For the last few months, he’s been putting out feelers to the higher-ups at the bank to show his interest in the idea, and to convince them that with his help, Nick is sure that the bank could make a killing.

The plan is to beef up Barings’ involvement in the Singapore International Monetary Exchange, or SIMEX. Up until now, the bank has traded stocks there, but it hasn’t done anything in the futures market.

Futures contracts are essentially a promise to purchase a commodity later, at a price set now. Investors can trade futures contracts for a number of reasons. But when it comes to Barings’ clients, they’re most likely to purchase futures in the hopes that the price of these commodities will eventually increase. That way, a client can turn around and sell those futures for more than they originally paid for them. There’s often big money to be made - but futures contracts can be risky as well. If the market turns unexpectedly, losses can quickly add up. It takes a skilled trader to make it all work.

Nick Leeson is certain he’s the man for the job and has lobbied hard for the role. And today is the day he finally gets his wish. Barings Bank’s Development Officer Tony Dickel steps into Nick’s office with incredible news — not only does the bank want Nick to help establish a base in Singapore, they want him to be the General Manager there. Nick is going to run the whole thing.

He doesn’t take long to accept the offer. And once he lands in Singapore, Nick gets to work quickly. The first order of business is to apply for and receive a broker’s license. Considering his sterling reputation in the United Kingdom, Nick gets his license in no time. But on his application in Singapore, he leaves out a key piece of information.

Nick does not mention that back home he was initially denied a broker’s license because he had an outstanding debt of over $1,000 and received a court-order to repay it. But to Nick this deception is a minor detail. Past transgressions aren’t important now. What matters is that he gets a chance to showcase his skill as a trader in Singapore. And with the broker’s license secured, he can get started.

The first few months on the job go even better than Nick had hoped. It seems that he’s a natural in his new role, and the money is soon rolling in. Before the year is out, Nick has earned Barings Bank £10 million, the equivalent of about $35 million today. That's a huge contribution to the bank’s overall profits for the year, and as a reward for his efforts, Nick receives a bonus of £130,000, almost three times his basic salary. It’s clear in the eyes of his superiors in London, Nick Leeson is fast becoming the Bank’s golden boy.

But there’s something about this initial profit that the bank management doesn’t know.

The original plan was for Nick to trade futures on behalf of Barings Bank’s clients, buying and selling contracts with their money. And as far as Barings knows, that’s what Nick did. But he actually decided that he wanted to try a higher risk, higher reward strategy. Without consulting anyone or securing permission, Nick started making speculative trades with the bank’s money.

Nick figures that what his bosses back in London don’t know can’t hurt them. And he’s just made them a gigantic profit, so if the market continues to serve him well, Nick sees no reason to worry.

But while future trades can provide huge profits, they can also result in catastrophic losses. And soon, Nick’s luck will run out. The early successes will be eclipsed by mounting failures, and determined to cover up his mistakes, Nick will discover a handy way of simply making these losses disappear. But as he continues to blow through the bank’s money, it will become harder and harder for him to maintain the lie.

Act Two: Nobody Will Ever Notice

It’s July 17th, 1992 on the trading floor of the Singapore International Monetary Exchange, four months after British investment banker Nick Leeson moved to the city.

The whole room is a cacophony of voices as brokers answer phones, talk to their clients, and try to make as many commissions as they can before the end of the work day. Nick is in the middle of the action, working the phones alongside his fellow Barings Bank traders.

Then, the madness of the afternoon is interrupted by the ringing of a bell, and everyone erupts in cheers. This bell signals the end of the day’s trading — and it’s been an excellent one for the market, and the Barings Bank traders feel confident that they’ve gotten a lot done today.

Before he checks out, though, Nick wants to go over the trading slips to make sure everything looks right. And that’s when he notices a problem.

One of his employees, Kim Wong, has made a huge mistake. Instead of buying a bunch of contracts on behalf of her client, she’s accidentally sold them. As Nick does some quick calculations, he realizes that it’s going to cost Barings £20,000 to fix the error. To some people in the industry, this would be a fireable offense. But Nick feels sorry for Kim and wants to avoid having to let her go.

But his solution isn’t exactly above board, even though it is simple. Recently, Barings Bank instructed Nick to create an error account to log small mistakes at the Singapore office. He's labeled the account 88888, since the number 8 is considered lucky in some East Asian cultures.

Shortly after setting up the account, though, Nick’s superiors changed their minds and told him to stick with the old system of instantly reporting accounting errors so everything could be handled by London directly. Ever since then, the so-called “Five Eights” account has been dormant. Unused, and unmonitored. But when Kim Wong makes her mistake, Nick figures once again that what management in London doesn’t know can’t hurt them.

So, Nick quietly logs the error in to the Five Eights account. And then, he makes up a fake client who bought those same shares, and logs it as if it’s a real commission. That doesn’t change the fact that Barings is still short £20,000, but Nick figures that hiding the mistake away will buy him some time to fix the problem on his own. 

This is supposed to be a one time solution. But Nick soon starts to find it useful to make other issues disappear. It becomes known throughout his team that if mistakes happen, any broker can simply bring the problem to Nick, and he’ll handle it. 

By the end of 1992, Nick has hidden over thirty such errors. But the more losses he squirrels away, the more pressure he feels to earn that money back. He’s got a reputation to maintain. And so, he starts making bigger, and riskier trades. The market isn’t always reliable, though, and, over the years, a vicious cycle forms — Nick trades aggressively, and loses. So, he trades even more aggressively… and loses again.

Nick is in a unique position that allows him to continue this without being detected. He is basically his own supervisor.

So, he can do what he wants without fear of getting caught, until 1995. On January 17th of that year, an earthquake hits Japan and virtually collapses the market there. So much trading in Singapore involves the Japanese market that without it, Nick has very little hope of making back the money he’s been losing over the years.

But he continues to invest, even though his losses now add up to hundreds of millions of pounds. That kind of money is hard to hide, even for Nick Leeson.

In February, he gets a message from a clerk at the London office who says there’s a strange discrepancy in Nick’s trading account — £190,000 seems to be missing, and the clerk can’t figure out where it’s gone. Nick feigns ignorance but knows the game is up. And in a panic, he decides that he has to make a run for it.

On February 23rd, 1995, Nick will leave a note on his desk that simply says “I’m sorry.” Then he and his wife Lisa will flee Singapore for Malaysia. A day later, Barings Bank will discover the catastrophic losses that Nick has been hiding for years. But by then, it will be too late.

Act Three: Total Collapse

It’s a little after 9 PM on February 26th, 1995 in the offices of Barings Bank office in London.

Barings employees have been gathering here all day, anxiously waiting for news. Everyone knows that the situation is dire. The bank is on the verge of total collapse.

For the last few days, any attempts to reach the rogue trader Nick Leeson have failed. After he first disappeared, the Barings auditors started poking around, trying to answer some basic questions about the discrepancies they found in his books.

But what originally seemed like a small issue has ballooned into an all-out catastrophe. The more the auditors dig into Nick’s files, the bigger the problem becomes. This is not just a matter of a few thousand pounds that are missing. Through risky, unauthorized trades, Nick has gambled away over two times the available capital of the entire bank.

Barings employees nervously pace around the offices, unsure of what to do. All anyone knows is that across town, a group of senior bankers from other firms are meeting to see if there’s any way to save Barings. But it would take a miracle. And as the hours tick by, the less confident anyone feels.

The senior bankers talk well into the night. And then, finally, the phone rings at Barings offices. An employee grabs it, hoping for good news. But after a moment’s pause, he replaces the receiver. Looking around at the anxious faces of his fellow workers, he tells the room, “The administrators are coming in. Grab what you can and run.” 

Barings Bank has collapsed. But as chaos erupts in the London financial world, the hunt for the man who caused it continues. It takes several more days for the authorities to locate Nick Leeson, but on the tarmac at Frankfurt International Airport, German officials take him and his wife into custody.

Nick Leeson is eventually convicted of fraud in a Singapore court and sentenced to six and a half years behind bars. After his release, he will write a memoir titled “Rogue Trader”, which will then be made into a movie starring Ewan McGregor. And in 2023, Nick will begin working for a firm of corporate private investigators, where he will help companies identify cases of fraud like his own. But it will be difficult, for any future fraudster to match the destruction Nick Leeson caused when, after years of deception and lies, he brought about the collapse of Barings Bank on February 26th, 1995.

Outro

Next on History Daily. February 27th, 1933. Exactly eight years after he relaunched the Nazis as a political party, Adolf Hitler learns of an arson attack on the German parliament building, and uses it for his own political ends.

From Noiser and Airship, this is History Daily, hosted, edited, and executive produced by me, Lindsay Graham.

Audio editing by Muhammed Shahzaib.

Sound design by Matthew Filler.

Music by Lindsay Graham.

This episode is written and researched by Georgia Hampton.

Edited by William Simpson.

Managing producer, Emily Burke.

Executive Producers are William Simpson for Airship, and Pascal Hughes for Noiser.