The collapse of Britain's Baring Bank in February 1995 was a failure that was completely unexpected.
Baring's was Britain's oldest Christian bank and the fact that the failure was caused by the actions of a single trader based at a small office in Singapore posed some questions.
The trader was Nick Leeson, who after attending University, worked for Morgan, Stanley before joinign Baring's. At both firms he worked in operations but shortly after joining Baring's he applied for and received a transfer to the Far East.
Baring's had maintained an office in Singapore since 1987 called Baring's Securities Singapore Ltd, BSS. Without a seat on the exchange BSS was having to pay commissions for all its transactions. The next step was to purchase a seat and hire traders.
Leeson arrived at BSS in 1992. As general manager his job was not trading but he took the necessary exam so he could trade on SIMEX (Singapore's Exchange). He was now general manager, head trader and de facto head of the back office. Such an arrangement should have rung alarm bells but no one within Baring's senior management seemed to notice the blatant conflicts of interest.
Leeson took speculative unauthorised positions in Futures as well as options on the Nikkei. He hid his trading in an unused BSF error account. Exactly why he was speculating is unclear. The sheer volume of his trading suggests a simple desire to speculate. He lost money from the beginning. By the end of 1994 his secret account, No. 88888, had lost a total of £208,000,000. Baring's management remained blithely unaware.
Then on February 21st 1995 he hopped on a plane to Kuala Lumpur leaving behind a deficit of £GB 827,000,000.
Traders sometimes speculate without authorisation. Presumably some are able to cover their tracks. Others are caught. When they are caught they are fired and their employer absorbs the loss, but by the time Leeson was discovered he had bankrupted his employer.
The question then to be asked is: was it deliberate or was someone behind him? Peter Baring himself didn't ask the question but merely stated: "This was deliberate."
Coincidentally the time for such a move was well-chosen. There were various factors that allowed him to avoid discovery. There was a merger going on between two parts of the organisation. Therefore insufficient attention was paid to his activities. In addition Leeson was an accomplished liar. He falsified records, fabricated letters and made up elaborate stories to deflect questions from management, auditors and even representatives of SIMEX.
Six days after fleeing Singapore, he was arrested in Frankfurt, trying to return to London. He stood trial in Singapore, was convicted of fraud and sentenced to six and a half years in Singapore's Changi prison. For good behavior he was released from prison early in July 1999.