Where’s the bloodletting?
Nick Leeson knows all about punishment in the financial world, but the man jailed for bringing down Barings Bank tells Clare Weir that the spectre of Nama has not gone far enough in disciplining those responsible for Ireland’s current economic crisis
As he languished in a dank Singapore jail after single-handedly bringing down one of the biggest banks in the world, ‘rogue trader’ Nick Leeson could never have imagined settling happily in Ireland on his release — or that he would then witness yet another financial collapse happening right on his doorstep.
Leeson spent about four years in jail for his role in the demise of Barings Bank, at that time UK’s oldest merchant bank, the personal bank to the Queen and the institution that had funded the Napoleonic Wars.
He first started work in the city of London in 1982 and by 1993, having been sent to open an office for the company in Singapore, had made more than £10m — about 10% of the bank's total profit for that year.
But a downturn of the markets sparked by an earthquake in Japan meant that by the autumn of 1993, Leeson’s losses stood at £208m.
He requested extra funds to continue his trading activities, but his bosses carried out a spot audit in 1995 and found that losses amounted to more than £800m, almost the entire assets of the bank.
Leeson went on the run, but was eventually caught in Frankfurt. Barings went bust in 1995 and was bought for £1 by the Dutch banking and insurance group ING.
Dozens of executives, who were implicated in the failure to control Leeson, resigned or were sacked. He pleaded guilty to fraud and was sentenced to six and a half years in prison.
Added to that, Leeson’s first wife Lisa left him while he was in jail, and he was diagnosed with — and is now in remission from — colon cancer.
His story was made into a Hollywood movie starring Ewan McGregor.
Leeson leads a much quieter life these days, living with his second wife Leona in Galway.
He has recently stepped down from his role as chief executive of Galway United football club amid financial woes. The club was axed from the League of Ireland after failing to meet the licensing criteria, but Leeson says the reasons behind his departure are more personal.
“It was a tough environment and football is a poor relation in terms of sporting teams in Galway — GAA and rugby are more widely supported,” he says.
Rather than a sharp-suited wheeler-dealer with a mobile phone glued to each ear, Leeson presents a much more relaxed figure than one might imagine — dressed in a hoodie and jeans — ahead of his speech to Chartered Institute of Logistics and Transport (CILT) members at the organisation’s annual dinner in Belfast.
He’s just driven for four hours but seems happy to chat about the state of the economy in the UK and Ireland.
Ironically, Leeson is just about to publish a new book on the topic of ‘risk’ — taking risks and avoiding them.
He now makes the bulk of his money from what he calls ‘storytelling’ — writing and speaking at events such as the CILT dinner, about his past, present and predictions for the future.
“After-dinner speaking is my main source of income,” he says. “I have just returned from Paris. I am writing my book about risk — I think we all need a bit of that in life.”
Leeson acted alone when he brought about the fall of Barings, but says that some aspects of the most recent banking crisis are comparable.
“There is a mantra that banks should be responsible lenders, but for years they were irresponsible — that’s why we have the recession we’re in,” he says. “Someone has to take responsibility for that.
“There is something in social psychology called a fundamental attribution error; basically, the thought that if something is going to happen, it will happen to somebody else — but it happened to everyone.
“Barings was one organisation, this was industry wide. Credit had never been cheaper and that was the crux of the matter — credit was too cheap.
“On the flipside, I bought my first home in 1987 or 1988 in England and the interest rate was 15 to 16%, that was during a property boom. The recession came and 60% of businesses went out of business overnight.
“I came back from Singapore in 1999 and the country was a facing new record level of debt back then, but action was not taken. You can’t blame people, because at the end of the day nobody gets any training on finance.
“Money management should be a module in school. People just go out into the world and have money thrown at them — how do they know not to say no?
“People, the banks themselves, were too lackadaisical for too long, it was too easy to get credit and to get into debt.
“Credit-card companies, when half of their customers default, still don’t have a problem, but when they started seeing wholesale default and the debt mountain started to build up, then they had a problem.”
Leeson says that sanctions against the banks will have little effect.
His interview took place just days after Barclays Bank admitted it paid only £113m in UK corporation tax in 2009 — a year when it rang up a record £11.6bn of profits.
“Sanctions will have no effect whatsoever,” he says. “Banks are very good at pushing the rules to the absolute limit to make a profit — that’s what Barclays have done with the amount of tax it pays to the Exchequer.
“It’s not breaking the law. That’s what banks do — they push the rules and regulations as far as they can.
“It’s unpalatable to the public, but that’s what happens. The banks will always be okay, as things get difficult for the rest of us. It’s also unpalatable for the public to see the banks bailed out and then return to profits very quickly. That does not sit well with people.”
But Leeson is quick to point the finger at the regulators.
“Lending had gone out of control, and had been for some time, and nobody did or said anything. It was so cheap to lend, the controls weren’t in place where they should have been.
“The Government, the Central Bank, they need more regulations and they need more control. They need to have all the information, they need to keep their eyes on the ball.
“No one had their eyes on the ball over the past few years.”
In Ireland, he says the situation has been magnified.
“When Ireland joined the EU, as a small island, it had access to very cheap money. It was like letting a little kid into a sweet shop; he would go crazy — and a lot of the businesses did.
“In the construction industry, almost the opposite happened — rather than bankers telling landowners to not put their eggs all into one basket, they were encouraged to [do so].”
Leeson adds that the spectre of Nama has not gone far enough in punishing those who spent beyond their means.
“I don’t see Nama as a good thing, he said.
“In my opinion, there should have been a lot of bloodletting. There was complete and utter over-borrowing, some of the companies should have been allowed to go to the wall.
“Nama is more of a safety net than a punitive measure.”
...and how it was all lost for Nick Leeson
In the early 1980s, Nick Leeson landed a job as a clerk with royal bank Coutts, followed by a string of jobs with other banks, ending up with Barings, where he quickly made an impression and was promoted to the trading floor.
Before long, he was appointed manager of a new operation in futures markets on the Singapore Monetary Exchange (SIMEX) and was soon making millions for Barings by betting on the future direction of the Nikkei Index.
His bosses back in London, who viewed with glee his large profits, trusted the whizzkid.
Leeson and his wife Lisa seemed to have everything: a salary of £50,000 with bonuses of up to £150,000, weekends in exotic places, a smart apartment and frequent parties. And to top it all they even seemed to be very much in love.
Barings believed that it wasn't exposed to any losses because Leeson claimed that he was executing purchase orders on behalf of a client. What the company did not realise is that it was responsible for error account 88888 where Leeson hid his losses. This account had been set up to cover up a mistake made by an inexperienced team member, which led to a loss of £20,000. Leeson now used this account to cover his own mounting losses.
As the losses grew, Leeson requested extra funds to continue trading, hoping to extricate himself from the mess by more deals. Over three months he bought more than 20,000 futures contracts worth about $180,000 each in a vain attempt to move the market. Some three-quarters of the $1.3bn he lost Barings resulted from these trades. When Barings executives discovered what had happened, they informed the Bank of England that Barings was effectively bust.
In his wake Leeson had wiped out the 233-year-old Baring investment Bank, who proudly counted HM The Queen as a client. The $1.3bn of liabilities he had run up was more than the entire capital and reserves of the bank.
Eventually arrested in Frankfurt, Germany, Leeson spent a few fraught months trying to escape extradition to Singapore. He failed and in December 1995 a court in Singapore sentenced him to six and a half years in prison.