...on Case Analysis: “The Barings collapse: breakdowns in organizational culture and management” Prepared by: Valeriya Yun ID: 201005032 SolBridge International School of Business, 2012 Introduction How it is possible that one person became an important reason for the world-known financial institution collapse? But it is, and this guy is Nick Leeson who brought the Barings bank to bankruptcy with losses of $1.4 billion, even though here he played an antihero role we cannot deny his talent. This paper provides an analysis of the case, introduction of the whole picture depicted in the case, Nick Leeson activities and operations, and of course assessment of internal control and some other problems in their structure which also influenced the bank collapse. An analysis is followed by conclusion and final recommendations. Barings Bank overview Barings Bank was founded in 1762 and in the beginning of the 1980s still had a reputation as one of the oldest in England and world’s most pre-eminent financial institutions. During their long history they have already been on the edge but that time they were saved by the Bank of England. But in 1995 as a result of Nick Leeson activities, the Barings Bank collapsed. In 1980s there was a vogue to buy or acquire stockbroking and jobbing firms and Barings Bank followed the tendency and bought Henderson Crosthwaite and built up the significant business BSL which had an operational independence of Barings Brothers & Co. Nick Leeson...
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...Case study- The Collapse of Barings Bank 1. What was Nick Leeson’s strategy to earn trading profits on derivatives? The play here was very simple – trading futures on the Nikkei 225 as the underlying. The Nikkei 225 was traded as a future on both the SIMEX and the Osaka markets. There were always known to be differences between the two markets which could be arbitraged. The idea was to exploit the differences between the 2 markets , and execute in the cheaper market on client orders. This would then allow Barings to net a profit as they execute in the cheaper market but quote the client the price in the more expensive market. The underlying idea was of course to always be long one and short the other. Leeson was long Nikkei 225 futures, short Japanese government bond futures, and short both put and call options on the Nikkei Index. He was betting that the Nikkei index would rise, but instead, it fell, causing him to lose $1.39 billion. 2. What went wrong that caused his strategy to fail? Nick Leeson’s strategy failed because the Nikkei 225 index kept falling while he continued to bet that it would rise. On the 17th of January 1995 a huge earthquake struck Kobe in Japan. The Nikkei plummeted putting Leeson’s positions under a lot of stress. The Nikkei plunged to 17950 by the end of that week and Leeson started recording big losses. Leeson’s solution was however to ask for extra funds from London to meet his margin calls and continue trading. His view was that the move down...
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...To employees (memo) This afternoon there was a significant cave-in in the San Jose mine that resulted in 33 of our employees being trapped. They are 2300 feet underground. At this time we have no way to communicate with them. Therefore, we do not know how many, if any, are injured or if they are alive. We are working very hard to set up communication and come up with a rescue plan. We will do everything in our power to bring them home safely. We greatly value each and everyone of our employees. Please stay positive and keep the miners and their families in your thoughts and prayers. To family (face-to-face meeting) I have asked to speak with you to inform you that there has been a collapse in the San Jose mine today. The collapse has resulted in 33 men being trapped. Your husband/son is one of those men. I want you to know we are going to do everything we possibly can to rescue everyone. Unfortunately, at this time, we have no form of communication available with them. Therefore we do not know how many are injured or how many have survived. I know this is horrible news and you are very concerned about your loved one. Please take comfort in knowing we will do whatever is necessary to rescue all 33 men. We are working as fast as we can to set up communication and come up with a plan for rescue. We will keep you involved every step of the way. We will also be here to support you through this process. There is a good chance that the rescue could take...
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...ARUCAN, PEARLNETTE GAY JUNE V. MANAGEMENT ADVISORY SERVICES MWF 1:30-3:30 ROBERT KIYOSAKI Who is Robert Kiyosaki? A fourth-generation Japanese American, Kiyosaki was born and raised in Hilo, Hawaii. After graduating from Hilo High School, he attended the U.S. Merchant Marine Academy in New York, graduating with the class of 1969 as a deck officer. He is an investor, businessman, self-help author, motivational speaker, financial literacy activist, and occasional financial commentator. Kiyosaki is perhaps best known for his Rich Dad Poor Dad series of motivational books. As a devout global financial literacy advocate, Kiyosaki has been a staunch proponent ofentrepreneurship, business education, investing, and that comprehensive financial literacyconcepts should be taught in schools around the world. Why did he filed for bankruptcy? Robert Kiyosaki filed for corporate bankruptcy through one of his companies, Rich Global LLC. Rich Global LLC filed for Chapter 7 bankruptcy protection on Aug. 20 in a Wyoming bankruptcy court. Kiyosaki and his bankruptcy attorney did not immediately respond to requests for comment. The company had been weighed down by a lawsuit filed by Learning Annex, one of Kiyosaki's earliest backers who had helped arrange his public speaking events earlier on. Bill Zanker, the founder and president of Learning Annex, sued Kiyosaki after he allegedly failed to pay a percentage of profits from his speaking engagements. A district judge in New York...
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...Controls and the Collapse of Barings Bank __________________________________________________________________________________________ Commodities Trading: Nick Leeson, Internal Controls and the Collapse of Barings Bank By Sam Bhugaloo Page 1 of 21 Commodities Trading: Nick Leeson, Internal Controls and the Collapse of Barings Bank __________________________________________________________________________________________ Table of Content Introduction.................................................................................................................................3 Background and Overview… ......................................................................………… ........ .....4 Barings Bank...............................................................................................................................5 Internal Controls at Barings Bank.............................................................................................13 Lessons Learned and Steps Taken to Preclude Recurrences . ..................................................15 Conclusion ................................................................................................................................18 References.................................................................................................................................20 Page 2 of 21 Commodities Trading: Nick Leeson, Internal Controls and the Collapse of Barings Bank ____________...
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...Barings bank, was founded in London, UK, in 1763 as a merchant bank. During 80’s it started to have big international success. And in 1995 it collapsed because of general manager in charge of setting up the trading operations in Singapore (Mr. Leeson). The whole story started when Mr. Leeson found out that there was an error, when one of his phone clerks sold the contracts rather than bought them. That day the loss was calculated to be 20,000 Pounds. The only thing he could do was to close the deal only in the upcoming Monday. Because of a busy day on Monday, Mr. Leeson forgot and now this was a problem that could affect not only the clerk but also him. So, he decided to hide this error permanently in an account 88888, but after some days this error could cost the firm 60,000 Pounds so this became a very serious problem that could cause Mr. Lesson troubles with his position in the company and also affect his bonuses (which until now were really high). So he decided to hide this error, and lots of others made by him or his team, which they reached the loss of almost 1 billion dollars. Why did Mr. Leeson behave that way? While reading the case, you can understand that one of Mr. Leeson’s ambitions was to become a floor trader. When he was sent to Singapore, his position was to control both settlement and floor operations and this was not a common practice for Bearings. This way he could control the firm’s operations and also in the same time work in the back office, which...
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...A Project on All That Glitters: The Fall of Barings Bank A CASE STUDY ON RISK MANAGEMENT AND INTERNAL CONTROLS Introduction: In 1995 Britain’s oldest merchant bank of two hundred years came to a dramatic and fatal halt. The bank was Barings. The demise of the bank was brought about as a result of the actions of a derivative trader, Nick Leeson, stationed in Singapore. Without a careful and considered review one may be tempted to conclude that the blame rests solely on Nick Leeson. But if you think with analytical mind, you will ask: how is it possible that this one man was able to cripple a financial giant? What was the role of senior management in this situation and did they contribute to the demise? How effective were the internal control systems, Risk management system and was the Singapore operations managed effectively? The answer to these and similar questions would be indeed interesting and insightful in analyzing the debacle of Baring Bank. Reported on very widely in the nineteen- nineties, this bank collapse still holds significant lessons for those involved in the management of financial institutions. The objective here is not to prove definitively the exact cause of the collapse but to show, by way of a very narrow discussion, how certain deficiencies in internal controls and risk management systems impacted the bank and ultimately led to its collapse. When Barings collapsed it had a capital of approximately $600 million. Contrast this with...
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...Controls and the Collapse of Barings Bank __________________________________________________________________________________________ Commodities Trading: Nick Leeson, Internal Controls and the Collapse of Barings Bank By Sam Bhugaloo Page 1 of 21 Commodities Trading: Nick Leeson, Internal Controls and the Collapse of Barings Bank __________________________________________________________________________________________ Table of Content Introduction.................................................................................................................................3 Background and Overview… ......................................................................………… ........ .....4 Barings Bank...............................................................................................................................5 Internal Controls at Barings Bank.............................................................................................13 Lessons Learned and Steps Taken to Preclude Recurrences . ..................................................15 Conclusion ................................................................................................................................18 References.................................................................................................................................20 Page 2 of 21 Commodities Trading: Nick Leeson, Internal Controls and the Collapse of Barings Bank ____________...
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...Barings Bank and Nick Leeson Introduction I would like to present the case of Barings Bank, one of the most famous histories in the world when one man led to the bankruptcy the oldest British bank. Barings collapsed on February 26, 1995, due to the activities of one trader, Nick Leeson, who lost almost $1.4 billion. The loss was caused by a large exposure to the Japanese stock market, which was achieved through the futures market. Leeson, the chief trader for Barings Futures in Singapore, had been accumulating positions in stock index futures on the Nikkei 225, a portfolio of Japanese stocks. As the market fell more than 15 percent in the first two months of 1995, Barings Futures suffered huge losses, which were made even higher due to the sale of options, which implied a bet on a stable market. As losses mounted, Leeson increased the size of the position, in a stubborn belief he was right. Finally, on 25 February 1995 he walked away, when he realized that bank was unable to make the cash payments required by the exchanges. Later, he sent a fax to his superiors, offering “sincere apologies for the predicament that I have left you in.” Nick Leeson had totally wiped out the venerable 233-year-old Baring Investment Bank, which proudly counted Queen Elizabeth as a client. He left behind huge liabilities totaling $1.4 billion, more than the entire capital and reserves of the British institution. This situation - and a similar scam at the New York branch of Japan's Daiwa Bank in October...
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...________________________________________________________________________ BARINGS – A CASE STUDY IN RISK MANAGEMENT AND INTERNAL CONTROLS Author: Hubert Edwards September 2004 In 1995 Britain’s oldest merchant bank of two hundred years came to a dramatic and fatal halt. The bank was Barings. The demise of the bank was brought about as a result of the actions of a derivative trader, Nick Leeson, stationed in Singapore. Without a careful and considered review one may be tempted to conclude that the blame rests solely at his door step. The analytical mind, may however ask: how is it possible that this one man was able to cripple a financial giant? What was the role of senior management in this situation and did they contribute to the demise? How effective were the internal control systems and was the Singapore operations managed effectively? The answer to these and similar questions would be indeed interesting and insightful in analyzing the debacle that Baring proved to be. Reported on very widely in the nineteennineties, this bank collapse still holds significant lessons for those involved in the management of financial institutions. The objective here is not to prove definitively the exact cause of the collapse but to show, by way of a very narrow discussion, how certain deficiencies in internal controls and risk management systems impacted the bank and ultimately led to its collapse. When Barings collapsed it had a capital of approximately $600 million. Contrast...
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...FIN 444 MID 2 assignment FACULTY MzF How Leeson Broke Barings |The activities of Nick Leeson on the Japanese and Singapore futures exchanges, which led to the downfall of his employer, | |Barings, are well-documented. The main points are recounted here to serve as a backdrop to the main topic of this chapter - the | |policies, procedures and systems necessary for the prudent management of derivative activities. | |Barings collapsed because it could not meet the enormous trading obligations, which Leeson established in the name of the bank. | |When it went into receivership on February 27, 1995, Barings, via Leeson, had outstanding notional futures positions on Japanese | |equities and interest rates of US$27 billion: US$7 billion on the Nikkei 225 equity contract and US$20 billion on Japanese | |government bond (JGB) and Euroyen contracts. Leeson also sold 70, 892 Nikkei put and call options with a nominal value of $6.68 | |billion. The nominal size of these positions is magnificent; their enormity is all the more astounding when compared with the | |banks reported capital of about $615 million. | |The size of the positions can also be underlined by the fact that in January and February 1995, Barings Tokyo and London | |transferred US$835 million to its Singapore office to enable the latter the meet its margin obligations...
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...[pic] Case Analysis The COLLAPSE OF BARING BANK (Individual Assignment) BU 041 Why Corporate Social Responsibility Matters Name: Ou Yang Ning Xiao Term: January 2012 Lecturer: Mr. Issac Leung Due Date: 29th February 2012 Words count: 2133 words TABLE OF CONTENT Executive Summary-----------------------------------------------------Page 3 Introduction-------------------------------------------------------------- Page 4 CSR Problem within the Barings Bank----------------------------- Page 5 FIVE Acts to Prevented Leeson from Destroying the Bank---- Page 7 Why SOX not Prevent the Fraud------------------------------------ Page 9 How monitor the ethical standard----------------------------------- Page 10 Conclusion---------------------------------------------------------------- Page 11 Reference----------------------------------------------------------------- Page 12 Executive Summary This report is through the case analysis about the collapse of Baring Bank, to talk about how the corporate social responsibility influences a company. Through the related CSR problems in Baring bank and trying to find what matters that the organization lack of. In addition to know more about how CSR effect the global business environment, depends on the Sarbanes-Oxley Act, the report talk about the five acts can possibly prevented Leeson to destroy the company. And also discuss why the SOX act is not effective which lead...
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...Overview This article looks into the details with regards to the collapse of one of world’s oldest (~233 years old) and most respectable bank in London, Barings Bank on 26 Feb 1995 due to uncontrolled and well-concealed derivatives trading arising from ethical improprieties of a person called Nick Leeson in their Singapore office. End result is ~$1.4 billion in losses. On the surface, we may be tempted to conclude that the blame rests solely on him but an in-depth & analytical mind would ask the simple question on “how is it possible that this one man was able to cripple a financial giant?” Further possible questions which would pop up would be “What was the senior management’s role in this situation and did they contribute to the demise? How effective were the internal control systems and was the Singapore operations managed effectively? etc” In short, for this incident to happen, it involved more than one factor and similarly for this to be avoided, it also involved more than one lapse or system to be further reinforced and closed. As such, let’s take a deeper look into these aspects in the subsequent paragraphs. Factors behind the collapse of Barings Bank Nick Leeson started well as a star trader and was tasked as SIMEX floor manager by Barings to manage the Singapore trading operations to profit from low risk arbitrage opportunities with derivatives contracts between SIMEX and Japan’s Osaka Exchange. Arbitrage involves going long in one market and short in the other...
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...your ACC 409/609 class: The Committee of Sponsoring Organizations Report, Internal Control—Integrated Framework. You also notice that there are several cases addressing internal control issues. One case is the Barings Bank collapse and there is a video of this case that you and the other staff auditors will view as part of the training. You want to be prepared for the discussions during the training sessions, so you conduct some research on these topics, especially Barings Bank, because you are not familiar with that case. The COSO Framework You search the COSO website and find the 2013 Internal Control—Integrated Framework that outlines five essential components of any internal control system: (1) control environment, (2) risk assessment, (3) control activities, (4) information and communication, and (5) monitoring. This updated version of the Framework introduces 17 principles associated with the five components. These principles provide clarity for the user in designing and implementing systems of internal control and for understanding requirements for effective internal control. You decide to summarize each of the five components as a first attempt to relate the COSO Framework to the Barings Bank failure. You label your work “Summary of COSO and Barings Bank” (see Exhibit 1). You know...
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...1. What was the case about? (Summary of the Case) The case was about how one man single-handedly brought down one of the world’s most historic banks. The man was Nick Leeson and it happened from 1992 to 1995. He did it while holding the position of general manager to Barings Securities in Singapore. As general manager he oversaw both trading and back office needs, something uncommon in the industry due to the fact that it eliminated necessary checks and balances that would prevent such fraud from occurring. He had authority to deal in futures and options order for clients or other firms within Barings and arbitraging price differences between Nikkei futures traded on the SIMEX and Osaka exchange, it was a low risk strategy meant to make small profits. Where Leeson went astray was when he began unauthorized speculation in futures on Nikkei 225 stock index and Japanese government bonds. These trades where highly risky due to the fact that they involved a highly leveraged strategy and depended solely on the markets movement upwards. This strategy is a double edged sword because even though it provided devastating results for Leeson it could of also provided incredible gains if the market would have gone up. Leeson essentially bet that the Nikkei was going to rise. Once the loses started coming in Leeson opened up a secret trading account, account 88888. The account was initially set up to cover a mistake done by one Leeson’s traders in which she mistakenly submitted a purchase...
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