The first major problem the bank faced was in 1890 wherein the bank was almost declared insolvent due to excessive risk-taking on poor investments in Argentina. But it was nothing compared to what happened in the year 1995 when a rouge trader single-handedly led the oldest merchant bank to its end.

In 1992, Nicholas “Nick” Leeson, an ambitious young back office banker who had joined three years earlier from Morgan Stanley, was put in charge of Barings Futures Singapore (BFS). The unit’s job was simply to trade futures contracts for clients. Leeson was put in charge of both the trading floor and transaction settlement operations.

A year later, BFS began to trade using its own account, attempting to take advantage of the difference between futures on the Japanese and Singaporean exchanges to make a profit. Such arbitrage, referred to inside Barings as “switching”, was seen as “essentially risk-free and very profitable” by management in London, including its chairman Peter Baring.

Table from slideshare.net

Leeson, however, set up a secret account, number 88888, which he used to invest in the Japanese stocks, specifically in the Nikkei 225. Luck was not on Leeson’s side because by the end of 1994, account 88888 had lost about £200 million, but Barings’ London management were not aware. Leeson, as head of both front and back offices of the company, was able to disguise his losses as debts owed by Barings clients.

However, on the morning of January 17, 1995, the devastating Kobe earthquake caused $100 billion in damage and shook its bond and stock markets. Leeson continued to invest in Nikkei 225 thinking that the country’s economy will recover fast from the earthquake, but it did not. Leeson’s losses rose to more than £800 million and he was no longer able to disguise them from Barings