Nexus - 0302 - New Times Magazine-pages

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Chairman of Barings, told the inquiry team that they were "pleas- fair, the accumulated (and accumulating) realised losses were antly surprising”, but then he maintains that he believed BFS was _ being hidden—weren't they? Despite the fact that hundreds of making a fortune. In any case, based upon the strength of this _ millions of pounds were flowing to Barings Singapore to meet belief, he awarded himself a "proposed" 1994 bonus of margin calls in accord with SIMEX rules (a margin call is required £1,000,000, along with the other three most senior directors. | when your open ‘positions’ are making a loss), the directors and George Maclean, a member of the board of directors, also com- management of Barings London apparently weren't worried. On mented on the ghostly, non-existent profits, saying they were _ the contrary, they were able to report profits for the year and thus “very surprising”. And very surprising they turned out to be. Mr —_ accrue to themselves those richly deserved bonuses—even as they Maclean also got a "very surprising" "proposed" year-end bonus __ sank into oblivion. which was somewhat lower in amount than the Chairman's, but which in any case was substantial enough to keep his spirits MEANWHILE, IN TOKYO... raised, along with his fellow directors, as they slid into cushy new Meanwhile, London Treasury Department obligingly provided directorships at International Nederlanden Bank following the BFS with the zippy and relatively insignificant sum of £521 mil- crash—a matter to which we shall return later. lion, increasing by 24th February 1995 to £742 million, to fund its The inquiry team, noting that they had book (or to cover the massive losses, if you not "analysed the build-up of the con- ‘ are more cynically minded). These sums stituent part of these losses prior to 31 | However, the fact is that someone ff were raised in unsecured loans on the December 1994, as essential docu- was writing those tickets with interbank market from a syndicate of 20 ments...have not been made available to . . Japanese banks, and, interestingly, repre- us", were able to demonstrate that the Leeson, and, as his transactions sented more than double the Barings cumulative losses stood at £324 million | racked up ever-increasing losses, Group reported capital, which is quite a at December 1994. However, by means his counterpart(ies) feat of leveraging. It is also strictly out- of a Chinese-made slide rule, group prof- © esl side banking regulations and led to the its (Barings worldwide) for Os sae correspondingly racked up SION bitter resignation of Chris Thompson, period were reported as £102 million Increasing profits. Senior Manager of Merchant Banking before tax, after charging £102 million to Oversight at the Bank of England, who is the group bonus pool—a point to which criticised in the report for allowing we shall also return. Obviously the collapse came suddenly, as is | Barings exposure to exceed the stipulated 25 per cent of the witnessed by the December 1993 accumulated loss (hidden by group's capital base. Apart from Leeson himself, Chris Thompson Leeson?) of a miserly £23 million. However, by virtue of a math- _ is the only other casualty of the debacle to date—if one disregards ematical system unknown to mankind (but known to accountants __ the shareholders, which Barings directors have indeed done. the world over), the group proudly announced pre-tax profits Banks lending such vast sums on an ‘unsecured’ basis on a bal- totalling £100 million—after charging £100 million to the group _ance sheet that is massively overleveraged and overexposed is not bonus pool. It’s a neat trick if you've got the odd few hundred mil- unheard of, even in these days of cowboy bankers, but it is rare lion quid handy, but the point to bear in mind is that Barings and I dare say somewhat peculiar.’ | am not suggesting that these Singapore didn't have anything but losses for the preceding two 20 unidentified Japanese bankers were writing all those loss-mak- years. ing tickets with Nick Leeson. They wouldn't, would they? I hate to labour the point, but I've got this feeling that the same | However, the fact is that someone (who is not identified in the no one who didn't authorise Leeson's ‘unauthorised’ trading, and _— report) was writing those tickets with Leeson, and, as his transac- who obviously didn't authorise the ‘authorised’ bonus payment of __ tions racked up ever-increasing losses, his counterpart(ies) corre- £450, 000 or, for that matter, authorise Leeson's growing remuner- _spondingly racked up ever-increasing profits. ation package, may have been the same no one who ‘authorised’ the accounts to show profits instead of losses. However, to be To be continued in the next issue of NEXUS Magazine... fair, the accumulated (and accumulating) realised losses were being hidden—weren't they? Despite the fact that hundreds of millions of pounds were flowing to Barings Singapore to meet margin calls in accord with SIMEX rules (a margin call is required when your open ‘positions’ are making a loss), the directors and management of Barings London apparently weren't worried. On the contrary, they were able to report profits for the year and thus accrue to themselves those richly deserved bonuses—even as they sank into oblivion. Footnotes: about this group's role in the affair. A syndicate is because she wasn't sure that they (the BoE) had this ; se hi : formed for the sole reason of spreading the risk information, but, if they did have it, it wouldn't in tad untolored Dasid Fst he convenieaty dint between them, The fact that this group all provided any case be availabe (phone call wit his writer, 5 ask any hard questions, Leeson, for his part, didn't ‘unsecured’ funding strikes me as extremely inegu- Oct. 95). Ernst & Young suggested that I speak to demonstrate any particular willingness to reveal the !#t- The normal course of events is that they would their PR company, Tavistock Communications, extent of collusion between himself and directors of hae approached Barings for a ‘comfort letter’ to who suggested that the Singapore Administrators, Barings. This is, it would appear, his only bargain- Protect them in the event that BFS crashed (which, —_Price Waterhouse (Singapore), were the proper peo- ing chip to avoid sentencing in Singapore for almost 9! Course, it did). This especially would have been _ple to whom to direct these questions. Informing 15 years, My judgement is that he will fail for the the case in view of the large amounts involved and Pau! Desmond at Tavistock in a somewhat ribald same reasons that he was incarcerated in Frankfurt. Particularly because of the overleveraging of manner that | doubted whether Price Waterhouse However, this may depend on the outcome of the Barings’ balance sheet, of which they couldn't fail to (Singapore) would provide this information to me if shareholders’ recent petition to have him broughtto be aware. In the scheme of things, Barings was they hadn't provided it to the BoE, he promised to London, following their announcement that they ‘small fry’ in the banking community, Inmyrole as —_get back. Thus far this information has not been intend to prosecute Barings and its directors pri- treasurer for. a wholly-owned subsidiary of a major —_ provided, Because of Japan's role in the Trilats vately in an effort to recover their massive losses. international bank, it was impossible to get funding (remember, this group was formed especially to 2. I have relied on the contents of this report, plus on the interbank market or to establish lines of cred- —_ bring Japan into the fold), it is certain that many if researched the relevant issues of The Times and The __it with other banks unless we provided comfort Iet- _ not all of the 20 banks are represented on the Economist, to prepare this article. If readers are ters stating that the group would support us. [have | Commission. The Bushido families of Japan are able to provide additional material that | have not queried the Bank of England on this matter and also still the leading elites in that nation and, between seen, | would be grateful to receive it. requested the names of the ‘group of 20'. Sam them, effectively own it. Most of the Japanese 3. The words, "a group”, suggest to me a syndicate. Davis of their press department politely advised me —_ trademark names that are familiar to us are derived Tf this is the case, then there are very serious doubts _to contact the Administrators, Ernst & Young, from these great houses. 34 ¢ NEXUS FEBRUARY-MARCH 1996