Chapter 1423 Investigate Barings Bank!

Judging from the development history and current capital flow of Bahrain Bank, this is still a very good international bank.

Although this international bank cannot be compared with Huifeng Bank and Zata Bank.

However, neither Melisi nor Huo Jianning are ordinary people. Now, there are two of them, one is the cabinet general manager of the Imperial Group and the other is the cabinet deputy general manager.

When the boss asked them to investigate all the information of Bahrain Bank in detail, the two men guessed that the boss was interested in this international bank, and they were likely to make an acquisition.

They have been with their boss, Sir Yang, for so long. It can be said that whenever the boss takes action, there must be a reason.

What followed was more and more shocking to Mailisi and Huo Jianning.

Because judging from some of the information displayed above, Barings Bank is not as glamorous as it appears on the surface, and there must be something wrong internally.

Next.

After the two of them got the information respectively, they were really more and more surprised as they read it.

The time came to January 12, 1995.

Thursday.

Meris and Huo Jianning met with their boss in the office of the general manager of the Empire Group headquarters.

"Boss, there is indeed a problem within Barings Bank."

After Merisi finished speaking, he handed the information to Yang Ming.

Yang Ming took the information and recalled the news about the collapse of Bahrain Bank in his previous life.

This incident shocked many people around the world at the time.

At this time, Yang Ming saw the detailed information that Mailliss and Huo Jianning had found again, and it turned out to be true.

There were some things that he couldn't figure out before, but now he can't figure them out.

And this involves one of the most critical figures.

Mawson.

Leeson officially came to work at Barings Bank on July 10, 1989.

Prior to that, he was a clerk in the liquidation department of Morgan Stanley Bank. After joining Barings Bank, he quickly secured the opportunity to work in the Indonesian branch.

Because he has patience and perseverance, is good at logical reasoning, and can quickly solve many problems that have not been solved before, which makes his work better. Therefore, he is regarded as an expert in futures and options settlement. The London headquarters has a strong influence on Leeson's work. Indonesia was quite satisfied with his job and promised to arrange a suitable position for him overseas.

In 1992, the Bahrain headquarters decided to send him to the Singapore Branch to establish the futures and options trading department and serve as the general manager.

It can be said that no matter what kind of transaction you do, mistakes are inevitable.

But the key is how you deal with these errors. This is especially true in futures trading.

Someone may mistake a "buy" gesture for a "sell" gesture; someone may buy a contract at the wrong price; someone may not be cautious enough; someone may buy March futures instead of June futures, etc. .

Once a mistake is made, it will cause losses to the bank. After these mistakes occur, the bank must deal with them quickly and properly. If the error is irreversible, the only feasible way is to transfer the error to an account in the computer called an "error account" and then report it to the bank headquarters.

When Leeson worked as a futures trader in Singapore in 1992, Barings Bank originally had an "error account" with the account number "99905", which was dedicated to handling errors caused by negligence during the transaction process.

This was originally a normal error account in the operation of the financial system.

In the summer of 1992, Gordon Bowser, who was fully responsible for the liquidation work at the London headquarters, called Leeson and asked Leeson to set up another "error account" to record minor errors and handle them in Singapore by himself to avoid errors. Trouble London job.

So Leeson immediately called Liesel, who was in charge of office liquidation, and asked her whether she could create another file.

Soon, Liesel typed some commands into the computer and asked him what account he needed.

In the culture of country Z, "8" is a very auspicious number, so Leeson used it as his auspicious number. Since the account must be five digits, the "wrong account" with the account number "88888" was born.

A few weeks later, another call came from the London headquarters, which had been equipped with new computers, requiring the Singapore Branch to continue to act in accordance with the rules, and all error records were still reported directly to London through the "99905" account.

The "88888" error account was put aside just after it was created, but it became a real "error account" stored in the computer, and the headquarters had already noticed that there were many errors in the Singapore Branch, but Leeson did not Cleverly prevarication.

The ignored account "88888" provided Leeson with the opportunity to create false accounts in the future. If this account had been canceled at that time, Bahrain's history might have been rewritten.

On July 17, 1992, one of Leeson's traders, Jin Wang, who had only joined Bahrain for a week, made a mistake: When a client (Fuji Bank) requested to buy 20 Nikkei Index futures contracts, the trader mistakenly sold After 20 moves, the mistake was discovered when Leeson was doing liquidation work that night. To correct this error, 40 contracts must be bought back, which means that based on the closing price of the day, the loss will be 20,000 pounds and should be reported to the London head office.

However, after various considerations, Leeson decided to use the wrong account "88888" to undertake 40 short Nikkei futures contracts to cover up this mistake.

Another similar mistake was made by Leeson's friend and executor George. Because George was his best friend, Leeson signaled that all 100 September futures he sold were bought by him, worth up to 8 million pounds, and the vouchers for several transactions were not filled out at all.

If George's mistakes were revealed, Leeson would have to say goodbye to his already satisfying life.

It was a piece of cake for Leeson to record George's several mistakes into the "88888 account". But at least three questions troubled him: first, how to make up for these errors; second, how to avoid the end-of-month internal audit of the London headquarters after recording the errors into the "88888" account; third, SIMEX asked them to increase margin every day, and they would calculate How much does the Singapore Branch lose every day? The "88888" account can also be displayed on the SIMEX big screen. In order to make up for the mistakes of his employees, Leeson transferred the commissions he earned into his account, but the premise was of course that these mistakes should not be too big, and the amount of losses caused should not be too big, but the mistakes caused by George were indeed too big.

In order to make enough money to recoup all his losses, Leeson took increasing risks and engaged in a large number of straddle trades. Because the Nikkei index was stable at the time, Leeson would earn option premiums from many trades.

If you are unlucky and the Nikkei Index moves violently, this transaction will cause Bahrain to suffer huge losses. Leeson did very well for a while.

By July 1993, he had turned the 6 million pounds deducted from the "88888" account into a slight surplus. At that time, his annual salary was 50,000 pounds, and the year-end bonus was nearly 100,000 pounds.

If Leeson stops here, Bahrain's history will also change.

In addition to covering up mistakes in trading, another serious blunder was trying to win over Bonnefoy, Nikkei's largest customer.

In late 1993, for several consecutive days, the market price soared by more than 1,000 points in a record-breaking manner every day. The computer screens used for clearing records frequently malfunctioned, and countless transactions were backlogged.

Because the system was not working properly, transaction recording was done manually. By the time various errors were discovered, Leeson's losses had reached nearly $1.7 million in one day.

With no other options left, Leeson decided to keep hiding the mistakes.

In 1994, Leeson was numb to the amount of losses. The losses in account No. 88888 increased from 20 million to 30 million pounds, and by July they had reached 50 million pounds.

In fact, many of the transactions Leeson made at that time were guided by market trends and not based on his expectations for the market.

He has become a puppet manipulated by his risky parts.

At that time, he could think about which direction of market movement would make him turn defeat into victory and make up for the losses in account No. 88888, so he tried to influence the market to move in that direction.

Leeson later described in his autobiography: "I feel ashamed that I have become such a liar - it started as a relatively small mistake, but now it surrounds me like a cancer... My mother definitely did not raise me It’s like this.”

From an institutional perspective, the most fundamental problem in Bahrain is the confusion between the roles of trading and clearing.

After Leeson went to Singapore in 1992, he worked as the futures trading department and clearing department manager of Singapore Singapore. As a trader, Leeson's original job was to buy and sell derivatives on behalf of Bahrain's clients and engage in arbitrage on behalf of Bahrain. Basically, there was not much risk.

Because the risk is borne by the client when operating on behalf of the client, traders only earn commissions, and arbitrage only earns the price difference between markets.

For example, Leeson used the different prices in Singapore and Osaka markets within a very short period of time to earn profits for Bahrain.

Generally banks give their traders permission to hold a certain amount of risk positions. But in order to prevent traders from being exposed to too much risk at their own banks, this permission limit is usually set at a very limited level.

Through the daily settlement work of the clearing department, banks can also effectively understand and grasp the status of their traders and risk positions. But unfortunately, Leeson had to do both trading and clearing in one person.

If Leeson was only responsible for the clearing department, as he was originally assigned to do, then he would have no need or opportunity to cover up the mistakes of other traders, and it would not create an uncontrollable situation. When the loss reached 50 million pounds, Barings Bank headquarters sent people to investigate Leeson's accounts.

The fact that there is a balance sheet every day, with clear records every day, illustrates Leeson's problems.

Even at the end of the month, the false accounts created by Leeson to cover up the problem would have been easily discovered, if Bahrain really had a strict censorship system. Leeson faked that Citibank had 50 million pounds in deposits, but the 50 million had been misappropriated to compensate for the losses in account No. 88888.

After checking the accounts for a month, no one checked Citibank's accounts, so no one discovered that there was no deposit of 50 million pounds in the Citibank account.

Regarding the balance sheet, Peter Baring, chairman of Barings Bank, also made a comment in March 1994 that the balance sheet is of little use because its composition may undergo major changes in a short period of time. Therefore, Peter Baring said: "It is naive to think that revealing more balance sheet data will increase understanding of a group."

No one can imagine the huge price paid by the chairman of Bahrain who did not pay attention to the balance sheet!

In addition, on January 11, 1995, the Audit and Taxation Department of Singapore Futures Exchange sent a letter to Bahrain raising some concerns about the total amount of funds required to maintain account No. 88888, and by this time Leeson was already required to request daily London remitted more than 10 million pounds to cover its margin call.

In fact, from 1993 to 1994, Barings Bank invested more than 110 million pounds in SIMEX and the Japanese market, exceeding the 25% limit stipulated by YG Bank that the total overseas funds of banks in country Y should not exceed 25%. To this end, Barings Bank has held many talks with YG Bank.

In May 1994, "tacit approval" was obtained from the senior official of the Bank of England in charge of commercial bank supervision. However, no supporting documents were left for this acquiescence, because the top person in charge of the relevant department of the Bank of England was not consulted, which violated the Bank of England's regulations. internal regulations.

In the two months between the discovery of the problem and the subsequent collapse of Bahrain, many senior and senior personnel in Bahrain were always concerned about it, and the audit department of the Bahrain headquarters officially investigated it. However, these investigations were easily deceived by Leeson.

Leeson described this period of time: "I find it incredible that no one stopped me. People in London should know that my numbers are fake, and these people should know that I ask the London headquarters every day The cash was wrong, but they still paid it."

From the perspective of financial ethics, if all the above financial practitioners involved in the "Bahrain Incident" are graded, they should be given a failing grade. In particular, many senior managers in Bahrain did not delve into the possible problems at all, but blindly believed in Leeson and expected him to make money for Bahrain's arbitrage.

What is particularly ironic is that two months before Bahrain's bankruptcy, that is, in December 1994, at a Bahrain financial results conference held in New York, 250 Bahrain bank employees from around the world also regarded Leeson as Bahrain. hero, giving him a long and warm applause.

At this time, Barings Bank had not yet collapsed.

However, when Yang Ming saw this information and recalled the collapse of Bahrain Bank in his previous life, he knew that it was almost done.