Nexus - 0303 - New Times Magazine-pages

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BARINGS THE A ‘lone trader’ has been blamed and imprisoned for the 1995 Barings Bank breakdown, but an - international banking cabal has gone to extraordinary lengths to keep the real story suppressed. Part 2 t is not at all strange that Nick Leeson’s immense losses resulted entirely from the sharp decline in the Tokyo Nikkei index which plummeted, the inquiry informs us, “following the Kobe earthquake". Leeson's loss-making positions were 100 per cent composed of Japanese instruments: the Nikkei 225, the Japanese Government Bond (JGB) contract and the Euroyen contract. Cynics might wonder why an earthquake would trigger a sudden massive selling bout in the Japanese market. However, ] can reassure you that things like this do happen. During October 1987, the mother of all storms that swept along the English Channel and hit the southern parts of England triggered a massive London stockmarket slump, wiping billions off the value of stocks and shares. This followed the snowstorm of the previous Friday in New York that triggered the even more massive New York Stock Exchange sell-off that wiped even more billions off US equity prices.‘ These two events almost led to a global financial meltdown which was saved, with minutes to spare, by the ever-helpful American Federal Reserve System. Those who have researched the most infamous crash of all time—the 1929 New York collapse—now know that a coterie of influential ‘money barons’ engineered the event and gained fortunes for themselves in the process. This, however, is another entirely unrelated story. Those things don't happen any more, do they? However, back at the London ranch, no one from the tea lady upwards discussed the precise figures involved in Leeson's activities. Peter Baring, the Chairman, blandly stat- ed: "We never specifically talked about the size of the position." This is quite remarkable in that he was the chairman of the oldest bank in England and might have shown some interest in exposure. I frankly find this comment wholly disbelievable. Likewise, none of the other directors wished to know what their position was. In point of fact, Tony Hawkes, whom we referred to earlier, had gone to Singapore in early February 1995 (from where he jet-setted to Tokyo until it was time to return to Singapore), not to quiz Leeson on the enormous (and overleveraged) pool of borrowing he had built up, but, on the contrary, "to arrange higher intra-day overdraft limits". The idea was to increase funding, not reduce it. Why? There is a time-honoured technique amongst City traders who have a ‘bad’ position. Rather than ‘cut’ the position and take a realised loss (making you Mr Unpopular in the bonus sweepstakes), the trick is to double your position, thereby averaging the price of your book, and grimly wait ‘til the market reverses itself, at which point you get out with an immense sigh of relief. I'm ashamed to confess that during my days as treasurer and director of a leading City bank, I observed such reprehensible behaviour on a number of occasions and thus can speak with a certain amount of experience and insight. Personally speaking, it is my experience that managements are not only aware of this doubling-up technique but occasionally encourage its use, especially when the only alternative is to book a large realised loss (and decrease the bonus pool and get fired at the next AGM). On these occasions, senior management are usually extremely reluctant to record formally any instructions or ‘guidance’ they give to their trader for fear that they will be held to blame if things turn out badly. The trader is left, as they say in banking parlance, "to sweat over his book", knowing that he will be held solely responsible for the dire results. (His alternative is to resign, or otherwise demand written authority and be sacked.*) The Barings strategy was therefore not uncommon. The amounts involved, however, were. It is clear from the inquiry report that Leeson continued to double up in this manner until he could bear it no more, and scarpered, leaving everyone to panic and literally shed teare by David G. Guyatt © 1995/96 5 Mucking Hall Cottages Mucking Hall Road Barling Magna, Essex SS3 ON} England, UK Phone/Fax +44 (0)1702 21 7523 by David G. Guyatt © 1995/96 tears. APRIL-MAY 1996 NEXUS ¢ 29