Word: leesons
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Dates: during 1990-1999
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EARLY IN 1994 A NEW YORK CITY-BASED Barings banker introduced Leeson to a client whose identity remains a closely held secret at Barings. The client reportedly told his Barings contact in New York, "I hope you're getting some credit for this because your company is getting a lot of business from me in Singapore." It is still not clear where the mystery client's investing stopped and where Leeson's own-hidden in error account No. 88888-began. But right to the end, Leeson claimed that his huge, inexplicable investments were on someone else's behalf. "He always...
...Leeson started buying and selling the simplest kind of derivatives, futures pegged to the Nikkei 225, an index of the value of 225 Japanese stocks that is Japan's equivalent of the Dow Jones Industrial Average. It was a straightforward process: in effect, Leeson placed open-ended bets on what would happen to billions of dollars worth of Japanese stocks and bonds. His wager was similar to what gamblers in Las Vegas betting on a football game call the over and under-meaning a bet on whether the final score of a football game will be above or below...
Barings believed it was not exposed to any risk because Leeson said he was executing the huge purchase orders at a client's behest-and presumably with the client's funds. Furthermore, to Barings' delight, Leeson was also making a tidy profit by making those trades in conjunction with the bank's separate and official holdings of Nikkei 225s in Osaka and SIMEX."I won't tell you how good," says a Barings employee, "but it was a good business." Little did Barings know that it was responsible for error account No. 88888, which was unhedged and would turn...
...late November or December, Leeson decided to wager that the Nikkei index would not drop below about 19,000 points on March 10, 1995. It seemed to be a safe bet: the Japanese economy was already rebounding after a 30-month recession. Using the account No. 88888 also had a special advantage, one that Leeson had probably learned about in his old back-office job in London when he made sure cash flowed into the right accounts. Both Osaka and Singapore demand prompt margin payments on contracts-that is, the difference between what the contracts were sold for and their...
...addition, while Leeson could call up the error account on the company computer, most of his colleagues, who lacked the special password, did not have access to it. And last week members of Leeson's trading team in Singapore admitted to police that he had instructed them to put only a certain number of specific trades in the error account...