Nexus - 0303 - New Times Magazine-pages

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THOSE TRICKY BONUSES though BFS had accumulated losses of £23 million (naturally hid- A week after the first announcement that Barings was bust, den by Leeson). The report adds that Barings was in the process Internationale Nederlanden Groep NV (ING), a Dutch bank, pur- _ of “establishing a more formal and scientific process to determine chased the remains of Barings Group for the paltry sum of £1.00 individual bonuses". Interestingly, the bonus pool for 1992 and provided a cash injection of £660 million. To avoid further amounted to a miserly £21 million, but then Leeson hadn't begun losses accruing to ING, it was agreed by the administrators that his enormous loss-making trading activities, having only arrived this sum be capped; in other words, this was the full extent of their in Singapore in March 1992. Leeson waited a further year until, in cost—or so they thought. The additional unrealised losses that | March 1993, Jan Martin, Group Finance Director, appointed him eventually totalled £267 million were picked up by the chagrined to “head up our SIMEX operation and also act as floor manager". shareholders of Barings Plc. A Group Finance Director appointing a trader is unheard of, and What, then, did ING get for its vast investment? For one thing, was of sufficient interest to lead the inquiry to note: “It is not it got Barings' board of directors, complete with their vast risk- clear why the GFD was able to make or approve such front office management expertise, intimate appointments.” Strange, but true. knowledge of strange foreign mar- Prior to moving away from the kets, and their sharp, professional . u * bonus scheme, a further fact is of management protocols. Oddly, Is it possible that Barings, even at interest. The miserly £21 million bau mah ca = tiga of this early stage (before Nicky-boy Paid oe a 1992 pee suspect for arings to almost broke down oe 1 1 the simple reason that it "was not due to the recalcitrant Barings started stompin the floor ), was funded by profits earned in that komt af diecetars she deur engaged in dubious, perhaps seer In pot of feet, 1958 that the million bonus pool, ee ees isastrous for the bank, whic set aside in the balance sheet for the criminal activity that may have reported before-tax profits of the year ending December 1994, be | jncluded false accounting in order relatively small sum of £42 million. paid out to them. To the amaze- . h d d Having observed this peculiarity in ment of everyone except those who to cream in those mucn-neede their report, the inquiry team mem- know how the City operates, this bonuses? bers did not pursue the most inter- was agreed and the bonus pool released for payment. Thus, despite bonuses were funded. They didn't having accrued losses of almost £1 do this because they did not have billion and being roundly condemned by one and all for an alarm- —_ access to documents for that period and because their terms of ref- ing lack of management, senior Barings directors, undeterred, erence confined them to investigating the collapse itself. esting question of how the 1992 awarded themselves bonuses of £1 million cach for the second Is it possible that Barings, even at this early stage (before year running (with lesser amounts going to other directors and = Nicky-boy started stompin’ the ‘floor'), was engaged in dubious, nominated staff). perhaps criminal activity that may have included false accounting The inquiry report observes that Barings was immensely proud in order to cream in those much-needed bonuses? It should be of its bonus and remuneration system which, typically, we are borne in mind that Barings had a policy of drawing 50 per cent of told, operated at a 75:25 ratio at director level—that is to say that annual gross profits into the bonus pool—which, by any standards, the bonus was a minimum of 75 per cent of the directors' annual _is unusually excessive. Remember, too, it was immensely proud income. For the year ended December 1993, the bonus pool like- —_ of the 75:25 performance bonus/salary ratio. However, if results wise totalled the not insignificant amount of £100 million, even were very poor in any given year, the directors didn't get that 75 per cent top-up to their otherwise meagre annual earnings—which, sadly, were only in the low hundreds of thousands. At that time, Barings was a publicly quoted Ple— an important fact that even today should not be overlooked when considering the possi- bility of false accounting or any other possi- ble financial malfeasance. BARING THE FACTS—BALANCING THE BOOK? There are many other inconsistencies involved in this collapse. In September 1993, SIMEX (the Singapore Money Exchange) wrote to Simon Jones, a director and member of the Asia-Pacific Management Committee, outlining breaches in SIMEX rules that featured the mysterious 88888 account. However, Jones, despite replying to them later, denied any knowl- edge of this account (wherein all the umau- thorised trading was logged) to the inquiry. In fact, everyone at Barings, apart from 30 ¢ NEXUS THOSE TRICKY BONUSES APRIL-MAY 1996