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Published: Fri, 02 Feb 2018

Nick Leeson: The event on November and December 1994

Nick Leeson received a call from Ron Baker at the 2a.m. midnight. Ron told Nick Lesson that they need another £ 2 million profit before the end of the month to secure their bonuses. Nick was available all the day time but Ron just called him during the night. It is a way of terrorisms and sleep deprivation was a good way to start. Nick Lesson knew that if he did not make the amount of money back, he could not take a bonus from Barings. He had to leave before the bonuses were paid. Everyone were talked about the bonuses until the end of the year. All Nick Lesson traders were confident that he would put up a strong fight for their bonuses. At the end of October Nick could not sell options so he just used a journal entry on the Citibank account to make the 88888 account to zero. It had passed the internal audit but Nick has to face external auditors who would definitely check the account balance to ensure that the money was there because the year-end was coming up. At the end of October, Baring Bank has a big buyer in the March futures who bought over 2,000 contracts. Nick cover was getting flimsy. Nick Leeson told his coworker, Fernando to buy the December ones against March ones which they sold to the big customer. Therefore, their funding requirement will be increased and Ron Baker will not be get angry on Nick Lesson because there was some good money in it. Futures contracts typically have a three-month life, so the December contract nears expiry date, everyone will start trading in the March contracts. However nearly all the business continues in the December contacts until the very last day. This means that if there is a big buyer or seller in the March contacts at an early stage, he will have a disproportionate effect on the market. Any market which has been distorted by bulky trading is a perfect market for arbitrageurs because they can deal off the big player in the March contracts, and then sell in the more liquid December market. Nick Lesson had been buying the December contracts in Osaka and selling the March contracts in SIMEX. It is a great business. If Nick Lesson did not make the losses, he will be bringing a large profit. However, the JGB market had risen and Nikkei had fallen. Nick Lesson had lost at least another £20million Nick Leeson who currently at Tokyo to join the Financial Products Group’s Asian Meeting was stared at the screen, watching helplessly as the figures moved and he had no telephone on his hand to make an order. He can do nothing, he was not sure whether he should buy or sell. He had taken a big punt to try to clear the account before the year-end, and it had backfired. He decided to wait and he thinks that there was no immediate pressure, the month-end was still over a week away, and he had to be back to Singapore fix the balance sheet. However, the next day the markets moved against him again and again on the other day. He stood in front the same screen and watched with horror as he realized that his loss was now £ 50 million in three days time. Nick Leeson tried to hidden his losses and not telling anyone how much losses he bring to Baring Bank.

28 November, Nick Leeson and his wife, Lisa went to London to attend Lisa’s grandfather’s funeral. There was a conference at New York at the same week. While he was not around, Ron Baker issues him a security pass so that he can go into the conference and trade through the nights which he was away from Singapore. He had no time to sell options to cover the November-end balance sheet, so he made another journal entry and pretended that the funds were in the Citibank account. The numbers were in a large amount. Nick Lesson pretended that £65 million was on the deposit in Bering’s Citibank account. It was ridiculous, but nobody was looking at the accounting package that sending to them.

In order to make profit, Ron Baker had order Nick to do trading in the market. Since Ron was expecting and the SIMEX would underway, Nick decided to do some dealing. He gave Risselle a couple of tame orders, to buy at best around the 250 mark, sell if it hit 300. Ron called Nick at phone, Nick told him he make a couple of trade but didn’t mention whether he had made or lost money. Nick could not speak out his mind to told Ron how much losses he had made in the SIMEX.

Wednesday, 7 December 1994 was a fine winter’s day as the Christmas is around the corner. Nick Leeson went into the Baring office; everyone kept approaching him and congratulating him. He smiled and walked away to Ron’s room. Peter Norris, Barings’ CEO was there. Ron introduced Nick to Peter. Ron described Nick as the red-hot trader who playing an important part in their restructuring in Singapore Barings Bank. Peter ask Nick whether he still enjoying himself been the key man in Asia. It reminded Nick the amount he loses. He had not enjoyed himself for about two years. He had been fighting the most horrible secret and he knew it was terrible but not enjoyable. He had lost almost £ 150 million and he cannot see the way out from it. He felt it likes fighting a cancer without telling anyone. He began to feel helpless and it is like a prisoner tied down in the wicker basket of a hot-air balloon. Every moment more and more helium was being pumped into the balloon, and it soared into the sky. He wanted to open his mouth and shout that he was scared about heights, and he had made a terrible mistake. He wanted to get down but he could not say a single word to anyone. He could only see all the smiling face of the people below him, like Ron Baker, Peter Norris and all the traders. The only god thing about hiding the losses from these people was that it was so easy. They were always too busy and too self-important, and were always on the telephone. They had the attention span of a gnat. They could not make the time to work through a sheet of numbers and spot that it did not added up. But Peter Norris had mentioned about the end of the year. Christmas was coming, the year-end was coming and it meant a year-end audit was coming.

9 December, Nick Leeson and two hundred and fifty Baring staff from all over the world were flown into New York for a Financial Products Group conference, sales talk and Christmas party hosted by Peter Norris and Ron Baker. The presentation started in the Sheraton hotel’s ballroom at 8 a.m. When Ron stood up and began to talk about the money they were making, Nick sat in the silent. Ron said “Nick Leeson, whom most of you know and all of you have heard of, runs our operation in Singapore, which I hope you all can try to emulate. If you all come up with ideas to follow his footsteps, Baring will become one of the most successful operations in the derivatives business.” During the rest time, Nick went to the bar room and ordered some wines instead of coffee. Nick ran away from the presentation. He was meant to be sitting next to Peter Norris, in the seat of honor but he could not live up to it. He knew that if he opened his mouth, he had started to talk about the losses and the 88888 account. The next day, Nick Leeson heard from George that Mary Walz had wrapped the proceedings up by once again looking at the Singapore operations and asking for a round of applause for the Singapore boys, who had made £ 28 million profit for 1994.

When Nick Leeson arrived back to Singapore, he asked Linda for the balance of the 88888 account. It was like asking the result of a medical scan. He had lost almost £ 160 million. He was in a hopeless position. He knew that the auditors were inching closer and closer, moving over columns and columns of figures as they approached the Baring Futures audit. For a week in Singapore he just let his losses sitting there. He was unable to sell options, so he just rolled over the funding requirements. The market did not go against him, but nor did it soar up and put him back on his feet. He did not know what to do. The only good thing was that everyone was busying with Christmas parties, and nobody did much business. Even Gordon Bowser, who been nominated by Simon Jones to be the Risk Officer in the internal audit report came from Hong Kong to checked out Singapore Barings’ operation. He had caused Nick Leeson a scare when he thought that Ash Lewis was going to do it, but it seemed very unthreatening at the moment. Everyone was just cruising after the New York presentations and waiting for the money to roll in.

During Christmas, Nick Leeson and his wife Lisa went back to London and celebrated the days with Lisa’s family. Nick wished that Christmas could last forever. It had not been a white Christmas, but it had been a dream Christmas. He did not want to go Singapore, he did not want to go back the real world or the unreal world of his 88888 losses. He wanted to stay at London with Lisa and her family, and drink and dance like an idiot and laugh out as loud as he can. He cursed himself because he could not feel any single happiness. His 88888 account was hanging around his neck like a string of rotten fish-heads. He shut his eyes and tried to hold himself together.

The day after Boxing Day, Nick Leeson and Lisa went to Ireland where they joined their friends Mark and Val for two days. Linda gave him a call from Singapore because it was Friday in Singapore which the day in a week to check out the balance on the 88888 account. Linda told him the equity balance on that week is 7.78 billion yen (US $ 77.8 million).

At the end of 1993, Nick Leeson had not facing any problem. He was able to sell options and bring in a premium which exactly equaled the realized loss, bringing the account to zero. The value of the options was underwater to 4 billion yen, but that could be rolled over and carried forward. In 1993 the price of options had still been high, with their volatility around 30 per cent, and he had known that he had been able to bring in sufficient premiums to cover his cash balance. But at the end of 1994, the figures had multiplied tenfold. He had sold options all year, forced the volatility down to 10 per cent, the prices were too low and he had finally run out of rope to hang himself. He knew he could not sell enough options to match the realized loss at the moment. It was 7.78 billion yen short. He had paid 7.78 billion yen losses over to SIMEX, by way of variation margin payments which he had received from London, but which had no corresponding entry on the balance sheet. There was a 7.78 billion yen hole. Nick Leeson called Linda to book the trade through the system for him by sell 2,000 December 21,500 puts at a price of 7778 and print out the normal reports before and after the entry. Use the reports before the trade for everything but the trial balance sheet; use the report after the entry for the trial balance itself. The impact of this instruction was that the trade booked at 7.778 billion yen would bring the account balance back to zero. However, in order to reconcile with SIMEX it would have to use the pre-entry reports. By changing the general ledger which is the trial balance of cash and debts owed to Barings and not the sub-ledger which reconciled with SIMEX’s records, Nick was making the 7.78 billion look as if Barings was owed it by SIMEX. The auditor, for sure, would jump on it and ask where it was, but they would not do that until Nick got back. I n the meantime, Nick had arranged for 7.78 billion yen, £50 million, to be owing to Baring from SIMEX rather than from inside Nick 88888 error account. By dong so, Nick knew the trouble he would face but he was not to going to go back. The books balanced at 31 December 1994, and that was the last others had see of him. If he ever went back to Singapore, they would find out that SIMEX had no third party from whom it could claim the 7.78 billion yen; they would find Nick fraud and hang him out to dry. Nick told himself he would never go back to Singapore again, he wished he could do that. Nick told Lisa his decision that he did not wished to go back to Singapore. Lisa snapped at him and wondered why he said so. Lisa think Nick was crazy because Ron had promised Nick four hundred grand, which will set them up for life. It is like winning the lottery. But Nick could not tell her what he knew. He had this secret which was burning up inside him yet he could not tell her. He simply could not open his mouth and say he has lost millions and millions of pounds. He had have found it was easier to tell Risselle, or any of his friend but he could not tell Lisa. Lisa stood in front of him, her whole body full with misunderstanding and indignation, she looked like a black question mark which demanded to be answered, but Nick move his sight away from her, He loved her too much, he do not want to shock her. He realized that he could not bear to be seen as a failure in her eyes. He had always succeeded at whatever he had done and he could not accept the idea of being failure. He had hidden his losses from everyone at Barings, from his friends and his wife, Lisa. Among all of his failings, it was the worst. He now had to go back to Singapore, to face his 88888 account which the hidden loss must now exceed £170 million, and to the small problem of how to get around the 7.78 billion yen which he had put into system as a receivable from SIMEX. He had to conjure up £50 million from thin air.

Nick Leeson : Event happened on January to 6 February 1995

Nick Leeson was back on the SIMEX. He was making good money, he was busy and his traders were happy and professional. They had built up a nice long position and they were riding the market up. He was just kidding himself. The market was not up, it was just moving obstinately sideways. Nick spy in the Nikkei pit, he realized he was wrong; he reckoned his year-end losses had risen to £ 170 million and they did not look like getting better. If he wants to get out, he had to pull the trigger one way or the other. The only problem was that it could get trouble to Nick Leeson himself also. Nick knew that SIMEX and auditors could not be far away now. He had seen the auditors, men in grey suits, they had come up against the 7.78 billion yen fabrication and that would be the end. However, the more serious thing would be they could flick a switch at any time to check Nick open position, see the 88888 account and its huge losses. At the year-end Nick future position in the 88888 account was 1,000 March 1995 contracts. In Nick’s perspective, it was only showing a small profit. The options were showing a healthy profit of about £ 75 million since they had been sold but the losses he had realized during the year were huge. Since he could not sell any options to bring in cash premiums to fund the margin, he had to use the futures to swing the market and take the maximum benefit from the options position that he already had. Most of his options would stay in the money if the market kept at around 19,000. He had to protect the strike prices of his options positions. He had to protect Japanese Government Bonds and no Euro yen in the 88888 account. The only weapon he could use to prevent his 88888 losses increasing was buying futures to prop up the market. In fact, if the market roes too much, he had have to sell futures because he did not want the other half of his straddles being exercised on to him. Nick Leeson was ready for the final push.

From the moment Nick and Lisa arrived back to Singapore in the first week of January 1995, he had lost control. He stopped looking at the 88888 balance. He knew that it was been a large amount but he was just intent on surviving each day. He was juggling from the year-end audit, the 7.78 billion yen deficit and the fact that SIMEX were beginning to worry about the amount of funding the 88888 account needed to support it and of course he had to continue to get London to send him over more than $ 10 million

each day. He had to get out from the trouble, but from the time he arrived back in Singapore on 8 January; his top priority was just being able to get through each day and drive back to his flat.

11 January 1995, it was a letter sent to Simon Jones from the Audit and Compliance Department of SIMEX. “We understand from your staff that the Initial Margin requirement was the margin requirement of the positions held by the sub account ‘88888’ of BSL-CSA. Based on the information provided so far, it appears to us that your company had financed the trading margin of the position held by the sub –account 88888. If this is really the case, your company has violated SIMEX rule 822 which prohibits members from financing the trading margins of their customer” the critical passage mentioned in the letter. Simon had start asking Nick Leeson what was the letter about. Although it was addressed to Simon, it had been put in Nick in-tray since it was a SIEX matter about futures. Nick had started to thought about hiding the letter or destroying it, but SIMEX would only write again, and then Simon Jones might pick it up by himself. Surely there would be someone turn on the computer and check Nick Leeson’s open position, Never mind the 7.78 billion yen fraud which he had to deal with, the 88888 account itself was blown open too. It was all over. Nick realized that the only thing to confront it was to bluff it out so he told Simon that it was just banging on about the intra-day funding limits and he wished SIMEX just get off their backs and let them do some business. Simon does not suspect with what Nick Leeson said. He thought that SIMEX do not want them to trade in the market. The response to the SIMEX letter of 11 January was sent on 25 January. In reply, Simon wrote that the 10 billion yen difference was partly funded by the excess yen funds in account 92000 (a Baring Securities Japan account) and the excess yen funds of account 99001 (another BSL agency account). The Baring Group’s margin funding requirements in the Asian time zone were managed by the inter-company loans which in the case the loans from BSJ to BSL.

16 January, even before Simon Jones had replied SIMEX, another letter had arrived. It talked about an improper segregation of client funds and improper computation of client funds to meet financial requirements. Meanwhile Nick’s funding requests were becoming ridiculous. In early January, Nick had received an internal memo from Tony Railton in which Tony asked Nick Leeson how he came to the US dollar funding figure on a daily basis. Tony said that

Wednesday 18 January, there had been an earthquake happened in Kobe. The market was going to fall out of bed. Nick started to think it might help him to turn over. Everyone in Japan had family or friends in Kobe and they were selling shares to pay for the damage. The market was butchered. Nick stood by the Baring booth and watched the chaos. All the Japanese guys were talking about the cracks which had appeared in their walls. Nick was clam and he began to see it as an opportunity. The market was well down which is 300 points, same goes to the market all over the world, it was tumbling. Nick futures position had lost another £ 50 million but he think that it would be the turning point. He waited for a day or two to see whether the market would really move. After that, on Friday 20 January, after the market had steadied at about 200 points below the pre-earth quake level, he went into te pit and spent all day buying over 10,000 March contracts. It was a massive purchase, the largest purchase Nick had done in his life. However, he did it with two utter convictions in his mind, he had to buy it back up to try to push it towards 19,000, the price range of his option position, and he thought that the market looked cheap. At the weekend, the market had tossed about a little but Nick 10,000 contracts were a good buy.

On Monday 23 January, the market opened up 30 points. It was approaching 19,000. Nick sat at the booth and let it run. Nick makes several million pounds when it rose another 30 points. He was satisfy when he watched the price, he kept an eye on George in the pit and he make a call to Fernando who in Tokyo. Fernando asked Nick hold on the trade because there was something selling in the market. Nick watched the pit and watched the screens and saw the market drop over 1,000 points. He had never seen it move so fast. Every five minutes he was waiting for a bounce which never happened. Finally he waited till the moment he called George to sell 2,000 market. He knew he was madness to try to sell more that that because he was getting no price at all. He told himself he could make whatever errors he wanted on it because he had lost an absolute packet of money. Nick’s brother makes a call to him and he had some chat with him. After that, he knew he must have lost at least another 7 billion yen on the options. He was down £ 50 million on the day.

The market was down over 800 points, Nick would need around $ 40 million from Brenda Granger to meet his margin funding requests from SIMEX. It was such a massive loss that surely he must soon be caught. Nick could not get out of it; the numbers could not getting worse as he think. It would shake up two years of deceit and fraud and everyone going to know it. When he was on the trading floor he felt no sense of vertigo, he just focus on the minute-by-minute movements and traded in and out. Numbers had just flew about, none of them seemed to matter. It was when he left and returned to face the back office that he got scared to death. That was when the numbers emerged on the print-outs and he was confronted by them face to face.

Mui Mui from Coopers & Lybrand called Nick. It was a call that would kill him. Mui Mui told Nick she was working on BFS and she had compiling the year-end audit and she need to ask Nick about the receivable from SIMEX which she cannot trace. It is a large amount which cost 7.78 billion yen. She needs explanation from Nick Leeson. Nick lied her that it was an Over-The-Counter trade between Spear, Leeds & Kellogg and Baring London which he did in December 1994. Mui Mui had accepted with what Nick told her about but she needs the documentation from Nick Leeson. Nick had one week of time to come out with the proven. At the same time, Simon Jones knew about the problem. Nick Leeson told him it was a computer mistake and Baring rather than Spear, Leeds and Kellogg ended up paying Banque Nationale de Paris ( BNP). Nick told Simon he will get back the money.

Friday 27 January, Nick Leeson bought almost 30,000 futures and the market began to shift. At the same day Coopers & Lybrand auditors came to Baring Singapore and they sent a status report to London’s office which mentioned that there is an S$ 115 million trade receivable from a third party, Spear, Leeds & Kellogg (SLK). This represents refund of margin deposited with SLK for an Over-The-Counter (OTC) Nikkei option which expired on 30 December 1994. The amount is still outstanding. Coopers & Lybrand are awaiting the audit confirmation of the year-end –balance. Coopers & Lybrand are informed by BFS that the S$ 115 million is not envisaged to be a problem and also the contracting party with SLK is Baring Securities Limited (BSL) which SLK’s credit-worthiness had discussed with BSL. However, Coopers & Lybrand needs Nick to confirm with BSL that SLK is an on-going and creditworthy customer. The status report soon would catch up the eyes in Barings.

Monday 30 January, the market squeezed up 700 points. Nick was up over £ 50 million. He had recouped all his losses since the Kobe earthquake. He was buying the Nikkei and selling JGBs short and he was requesting about $ 10 million everyday from London. Soon Brenda Granger, Mary Walz and Ron Baker started to ask Nick Leeson what was happening. Ron told Nick that Treasury had realized the funding is getting a problem. The old farts in Barings’ Asset and Liability Committee had requested Nick to reduce the position. Another letter from SIMEX was waiting at Nick’s table. SIMEX reminded Barings that its responsibility to ensure that Barings have enough funding including standby credit facilities in order to obtain its financial obligations to the SIMEX clearing house. Simon had make a copied of the letter and sent it to the Barings in London. The next day, Tony Hawes from London had sent an email message to Nick, quoting the Coopers & Lybrand status report. He needs explanation from Nick Leeson about the S$115 million. Tony took the Copper & Lybrand status report to Mary Walz and told her that it could mean there was a £ 50 million hole in Barings’ balance sheet. The Asset and Liability Committee meeting (ALCO) at London had begun. ALCO is the most senior credit committee in Barings and it decides the bank’s strategy and funding levels across the entire network of operations. SIMEX letter of 27 January was one of the agenda in the discussion.

Wednesday 1 February, Mui Mui has been asking about the 7.78 billion yen receivable, they want to sign off on the accounts next week. Nick knew that he have to stick with the story that Spear, Leeds & Kellogg and an absurd OTC trade. He knew he cannot pass it off. He flicked through a loose-leaf file in his drawer and found an original letter signed by Richard Hogan at Spear, Leeds & Kellogg which is a brokerage house specializing in futures and options. He was so lucky that he had an original letter with a signature. After that, Nick started to write a trade report to Simon. In the report, Nick Leeson mentioned that the large option put through the system between SLK and BNP. At the stage, booked via the system between SLK and BNP with premium to hit at maturity had no impact on the system. Customer side to hit at maturity, broker side had no movement because holding both sides (Dr + Cr) impact zero – BFS was not to be involved at all. The payment would be between SLK + BNP. Nick also mentioned that there was error in input of maturity. He reckoned Simon would never understand what he mentioned about but he would be too embarrassed to ask Nick to explain it. He just wants to ensure the money was in and the auditors could sign off. The next day, Simon asked Nick to solve the entire problem with Coopers and he did not suspect with what Nick mentioned in his report. The afternoon, Miu Miu from Coopers called Nick, she want three documents from Barings that come along with the confirmation from SLK that the 7.78 billion yen will be paid. Another document will be the Barings’ balance sheet to show that the 7.78 billion yen has been received and a note from someone in London, preferable Ron Baker, saying that he was fully aware of the deal and the credit risk and also the approval from him. Nick Leeson went back to his desk and pulled out the loose-leaf file with Richard Hogan’s signature and he found another with Ron Baler’s signature. So he scribbled two notes, one from Ron and one from Hogan. Nick plagiarizes Hogan, the Managing Director of SLK which confirmed the outstanding balance of 7.78 billion yen and confirmed that payment would be made on 2 February 1995. It was easy to forge Ron’s note since Nick had some Barings London papers. He took out the printed letter, cut off the letter head of Richard Hogan’s original letter, cut off the signature, paste them on a plain paper and photocopies the whole thing. After he photocopied the document, he left Barings and went back to his flat. On the way back to house Nick had make a call to Nisa and order her to arrange a transfer of 7.78 billion yen from the Citibank client account to the house account. He needs Citibank to send them a fax of the house statement showing that 7.78 billion yen has been paid in. Nisa was definitely thought Nick was mad but as her loyalty to him, she does whatever Nick told her to do. When Nick reached home, he sent the two forged letters of Richard Hogan and Ron Baker to his office. He was going to hand the two documents to Rachel Yong to pass on to auditors. Throughout the build-up in the 88888 account he was trying to trade out of a loss which had forced upon him. Ho could have admitted to the early loss but he tried to trade out of it. He could have come clean and Barings would have sacked them off and written off the loss and that would have been the end of the matter. But all along the matter Nick had traded and traded and dug himself deeper and deeper into trouble. Then he had covered up the loss at month-ends but that had been rolling forward operation. Under such prolonged pressure to make profits, he had allowed his sense of criminality to become warped. The loss had become hidden. But once he forged the two documents, he knew that he was wrong. He had added up a new crime.

Friday 3 February, Coopers & Lybrand issued an unqualified audit report on the consolidation schedules of Baring Futures Singapore. Nick Leeson had been wetted and cleared. Throughout the afternoon everyone had started to talk about the SLK receivable. Nobody asked Nick Leeson how he had arranged for the 7.78 billion yen to leave Barings. Nick knew that when things came down to detail, no senior managers actually wanted to get their hands dirty and investigate the numbers. They always assumed that they were above that and let other people to get on with it. For Nick Leeson’s case, there were too many senior managers who would chart about it but never go further. They never dared to ask him any basic questions since they were afraid of looking stupid about not understanding futures and options.

Tony Hawes from London gave Nick Lesson a call. Tony asked Nick where he got all that money to pay SLK, the equivalent of $ 78 million. It does not add up. Nick told him that it was part of funding which they (Singapore Barings) taken from him over the last six weeks. When it was paid off, Tony should see a reduction in the funding they require by an equal and opposite amount which mean some of the funding was used to pay SLK. But Nick promised the same figure will flow back to Tony as they will able to pay it back to him. Tony trusted what Nick said. When Nick Leeson end the conversation with Tony Hawes, he wrote a note to Nisa to book some futures sales in the system which should be more than the balance Nick recent purchases for the 88888 account. He had made for the 88888 account and is time to induce the SIMEX computer to calculate that SIMEX owed them money. This might result in some money being paid back to Barings London through Citibank. Nick do not worry whether the trick work out or not. If not, he can make another excuse; he can blame it on the market conditions which Tony and others had never contradicted with.

Peter Norris, the company’s Chief Executive Officer in London called Ron Baker and mentioned about the 7.78 billion yen. Peter asked Ron whether he had aware that they had lent some money to a broker in Singapore which Ron had no idea with. He was just shocked by it. Ron Baker went to find Mary Walz and they phoned Peter back. Ron told Peter he was so angry because he could not believe the story. Walz told Peter and Ron that she had spoken to Nick Leeson earlier and Nick told her it was “an accounting screw-up” and that Tony Hawes was ‘ all over Nick about it’. Walz and Ron called up Tony Hawes and Tony Railton and told them to go Singapore to sort out the mess. Although the audit had been cleared, they were worried about the cash flow. Ron Baker then called James Bax to find out what had happened with the 7.78 billion yen and why Nick was doing completely unauthorized OTC trades. James knew that the audit had been passed and thus, the money must be back in the Barings account. James told Ron it was only a non-transaction and it was an error and also asked Ron does not worry about it.

The senior manager then began to cover up Nick Leeson’s mistake. They had taken fright that £ 50 million should have been owed to Barings by Spear, Leeds & Kellogg. George Maclean, the Head of the Bank Group described Spear, Leeds & Kellogg as somebody he had never heard of. George asked the internal Barings Credit Unit to check SLK out. In actual fact the Bank of England later found out that, at September 1994, SLK had a net worth of some $ 268 million. The Baring Credit Unit also established that back in the summer of 1993 a counter-party review had been prepared on SLK and that they h

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