Finance > United Kingdom Bahrain bank Bankruptcy incident
No. 1
Well-known Barings bankruptcy of financial derivatives operation called a classic case of failure. February 26, 1995, Singapore, Bahrain, futures manager Nick. Morrison Nikkei 225 stock index futures investment losses, leading to Barings Bank suffered huge losses, the total loss of 14 billion U.S. dollars, the ultimate inability to continue operations and declare bankruptcy. Since then, it has a history of 233 years of operation and good performance of the old commercial banks in the City of London and even the disappearance of the global financial community. Currently the bank has taken over insurance group ING Bank. Bahrain Bank Group, the city of London was once the oldest and prominent a commercial banking group, known for the development of sound, reputable and well known, their customers are mostly level dignitaries, Queen Elizabeth II was also one of its customers . Bahrain Bank Group's business expertise is in corporate finance and investment management, business networks, mainly in Asia and Latin America, emerging countries and regions. 1994 pre-tax profits of Barings is still up to 1.5 billion U.S. dollars, Bank of China once hoped to expand their business. However, the following year, a financial speculation completely shattered all the development plans of the line. The surface of seemingly simple things, Morrison misjudgment fuse the entire event. However, it is this incident caused the world pay close attention to, financial derivatives are widely recognized high-risk. Discretion of the individual errors from Morrison to the collapse of Barings Bank, along with financial derivatives multiplied return on investment is the same multiplied investment risk. This is a financial derivative instrument itself "leverage" characteristics of the decision. The case of bank failure from the start of Bahrain, the financial community in Europe and America began to pay attention to regulating mechanism
Translated by Google
No. 2
1763, Sir Francis Bahrain Bahrain bank created in London, it is the world's first "commercial banks", not only to provide funds and the proposal, and he is doing business. Of course it is also like a commitment to buying and selling stocks, like other businessmen, the risk of land or coffee, since operators flexible, innovative, Barings Bank was soon in the field of international finance was a great success. A wide range of its business, whether it is refined copper to the Congo, traders have wool from Australia, or digging the Panama Canal, Bahrain banks can provide them loans, but different from the ordinary business Barings Bank, it does not develop general Customer deposits, so the more limited financial resources, can only rely on its own strength to seek survival and development. In 1803, has just come into the United States from the south of France to buy Louisiana, all the funds to come from Bahrain bank. Although Barings Bank was a strong competitor - a Jewish-run 罗斯切尔特 banks, but banks or governments of Bahrain, major companies and many customers preferred bank. 1886, Bahrain banks to issue "Ji Nishi" securities, the purchaser as handheld applications such as the influx of flood banks, but had to use police force to maintain, many rafts few hours later, bought a small amount of stock, and then wait for an opportunity throw out. Wait until the next day, when thrown, the stock price has doubled. Early 20th century, Barings Bank honored to receive a special customer: the British royal family. Outstanding contribution to the Bank of Bahrain, Bahrain, the family has received five hereditary title. This can be considered a world record, thereby laying the basis for a prominent position Barings. Morrison in July 10, 1989 formally to Bahrain bank. Before that, he was the Department of Morgan Stanley Bank _set_tlement, a staff member into the Barings Bank, he soon secured the Division the opportunity to work in Indonesia. Because of his patience and perseverance rich, good at logical reasoning, can not quickly solve many problems to solve before. With the improvement in working. Therefore, he was regarded as futures and options clearing experts, the London headquarters of Morrison's work is quite satisfactory in Indonesia and overseas to allow him to arrange a suitable job. In 1992, Bahrain, headquarters decided to send him to Singapore Branch was established futures and options trading departments, and served as general manager. No matter what trade, errors are inevitable. But the key is to look at how you handle these errors. Particularly in futures trading. Some people will "buy" sign wrong to "sell" gesture; someone will purchase the contract at the wrong price; some people may not care; some people may the purchase of the June futures are bought in March futures, and so on. Once the error, it will cause losses to the bank, in the event of these errors, the bank must be prompt and proper treatment, if the error can not be recovered, the only possible solution is to turn the computer the wrong one is called "error account" account, and then to the Bank Headquarters. Morrison office in Singapore in 1992, futures traders, the Barings Bank account had one person to "99905" and "error account", specializing in the trading process errors caused by negligence. This was originally a financial system, the normal operation of the error account. The summer of 1992, the London headquarters has overall responsibility for the liquidation of the Gordon Baose a telephone call to Leeson, Leeson also asked to establish an "error account" to record the smaller errors, and handled themselves in Singapore, so as to avoid trouble in London work, so Lisen Ma hired the responsible office on the liquidation of Liesel, her advice is to separate a file, and soon, Liesel computer and typed in some commands, and asked him what accounts, in Chinese culture, "8" is a very lucky number, so Morrison as his lucky number, the account must be five digits, so that accounts for the "88888" and "error account" was born. A few weeks later, another phone call to London headquarters, at headquarters, a new computer, the Singapore branch of science is required to act according to old rules, all the error logs still "99905" account directly to the London report. "88888" error account was dormant just created, but it has become a true "error account" stored in computers. When the headquarters and branches in Singapore has been noted many errors, but Morrison subtly prevarication by. "88888" This account has been overlooked, providing false accounting manufactured after Leeson, and if the account was canceled, the Bahrain's history may be rewritten. July 17, 1992, Morrison joined the hands of a trader Bahrain gold is only one week the king made a mistake: When the customer (Fuji Bank) asked to buy 20 when the Nikkei futures contract, the trader error To sell 20, the error in the liquidation of the night Morrison was found. To correct this error, must buy 40 contracts, that to the day's closing price, the loss of 2 million pounds. And shall report the London head office. But these considerations, the Morrison decided to use the wrong account "88888", following the 40 short Nikkei index futures contracts to cover up the mistakes. However, this way, the transactions carried out by Leeson become "owners deal" to Barings Bank in this account, exposure to risk exposure. After several days, even as the Nikkei rose 200 points, the loss of this short position by the £ 20,000 will be increased to £ 60,000 a (Note: there was less than £ 50,000 annual salary.) Harrison also did not dare mistake this time escalated. Another almost exactly the same with this error is Morrison's friend and executor of George guilty of the commission. George and his wife divorced, and all day immersed in pain, and began to give up on themselves, Morrison like him because George was his best friend and one of the best traders. However, George soon began to go wrong. Morrison indicated that he sold all 100 copies of the September futures which he bought value of up to 800 million pounds, but also evidence that several did not complete the transaction. If the error leaked George, Harrison had to say goodbye to the life he had a very smug, there will be several mistakes George recorded "88888 ID" is little effort on Harrison. But at least three problems with him: first, how to make up for these errors; second is the error entries in the "88888" account to escape the London headquarters after the end of the internal audit; third SIMEX margin calls them every day, their accounting compensation calculated into the daily number of branches in Singapore. "88888" account can also be displayed on the big screen in the SIMEX. To make up for his employee's mistake, Morrison will make his commission into the account, but the premise is that these mistakes can not be too much of course, the amount of loss is not caused by too much, but George does the error caused by too much. In order to earn enough money to compensate all losses, Leeson assume greater and greater risks, he was engaged in a large number of straddle trading positions as the Nikkei was stable, Morrison earned from this transaction option premium. If bad luck, dramatic changes in the Nikkei, this deal will greatly Bahrain with the loss. Morrison is also a period when the days done very smoothly. To July 1993, he added, "88888" was a loss of 6 million heroic account into a slight surplus, when his annual salary of £ 50,000, year-end bonuses are nearly 10 million pounds. If the Harrison stop there, then, will change the history of Bahrain. In addition to traders to cover the error, another serious mistake by the market to fight at Pawnee Faye's largest customer. In late 1993, after another few days, a record daily market prices soaring more than 1,000 points, recording the computer screen for the liquidation of frequent failures and numerous pen up the backlog of transactions recorded work. Because the system does not work, rely on transaction records of human, until you find all kinds of error, Leeson's losses in one day already up to nearly 170 million U.S. dollars. In no way out of the case, Leeson decided to continue to hide these errors. In 1994, the amount of loss Leeson numb, loss of account number 88888, from 20 million, 30 million pounds, to July reached 50 million pounds. In fact, Leeson was made by a number of deals, the trend in the market led by the nose, not because of how he expected the market. He has become a puppet of the risk area operations. He was able to think, what kind of change in the direction of the market make him win the game, to make up for the loss of account number 88888, will try to influence the market movements in that direction. Morrison described in his autobiography: "For myself, to become ashamed of such a liar - the beginning is relatively small error, but now the whole surrounded me, like a cancer, like my mother ... ... I am definitely not take into custody like this. " From the system point of view, the most fundamental problem is that Bahrain, trading and clearing confusion of roles. Leeson to Singapore in 1992 after serving the Ministry of Bahrain and Singapore futures exchange clearing manager. As a trader, Leeson had clients should work on behalf of Bahrain, derivatives trading and arbitrage both for work in Bahrain, is basically not much risk. Valet operations because of the risk borne by the customer, traders only earn commissions, but only to earn arbitrage between the market price difference. For example, Lilin Li, and large solitary Singapore market with a very short period of time at different prices, to make a profit for Bahrain. General banks to hold a certain amount of its traders, the risk of parts of the permit. However, in order to prevent the traders in their respective banks exposed to too much risk, such permission is usually _set_ at a very limited amount. Liquidation sector through the work of the daily _set_tlement, the bank traders and risk exposure of their situation can be effectively understand and grasp. But unfortunately, Morrison was one trading and _set_tlement, who is also the second level. In fact, Leeson arrived in Singapore a week before, Bahrain had an in-house internal communications, this problem may be caused by a disaster raised concerns. However, this concern has been ignored, so that Harrison reported for duty, the same individual trading and _set_tlement departments. If Harrison is only responsible for clearing sector, as examples had been given the same responsibilities, then he would not be necessary, there is no opportunity for the behavior of other traders sneak mistakes, it will not cause the final out of control situation. Reached 50 million pounds in losses, the Barings Bank had sent investigating Morrison's account. In fact, a balance sheet every day, every day was a record, we can see Harrison's problems, even at the end, Morrison made to cover up its accounting problems, it can easily be found - if Bahrain really have a strict review system. Harrison has 50 million pounds fake Citibank deposits, but 50 million have been compensated 88,888 coconut used in the loss of account number. Check the accounts one month, no one to check the accounts of Citibank, Citibank found that no one account and not 50 million pounds of deposits. On the balance sheet, Bank of Bahrain Bahrain chairman Peter also worked in March 1994 there have been some reviews that the balance sheet of no use, because it is composed, in a short period significant changes may occur, therefore, Peter Bahrain, said: "If that expose more data on the balance sheet, will increase the understanding of a group that is really naive." does not attach importance to the balance sheet of Bahrain, chairman of the high cost, it is No one imagined it! In addition, January 11, 1995, the Singapore futures exchange in the audit and tax department sent a letter to Bahrain, to give their account number 88888 for maintenance of some of the necessary funding concerns. And now Harrison has been asked to be a day to import 10 million pounds in London, to meet its margin calls. In fact, from 1993 to 1994, the Barings Bank in the SIMEX and Japan funds have been invested over 110 million pounds, exceeding the provisions of the Bank of England Bank of England's overseas total capital should not exceed 25% limit. To this end, Bank of Bahrain and Bank of England has conducted a number of talks. In May 1994, the Bank of England director of commercial banks by senior officials to monitor the "acquiescence", but this does not leave any proof of acquiescence, as the Bank of England did not consult the head of the relevant departments, in violation of the internal Bank of England requirements. The most incredible is that the end of 1994 Bahrain on the balance sheet shows the difference between 50 million pounds, the remains vigilant to loose its internal control and oversight. Houba Lin found the problem to its collapse two months, there are many senior and experienced officers in Bahrain have to be concerned about this issue, more formal Bahrain headquarters of the audit department to investigate. But these surveys are very easy way to Leeson deceived the past. Leeson of this period described as: "For no one to stop me this, I feel weird. London, people should know that my numbers are fake, these people should know that I am every day to the London headquarters Cash is not required, but they still pay the money. " Ethics from the financial point of view, if all of the above in "Bahrain event" rate of financial professionals, should be given failing grades. In particular, many senior managers in Bahrain, do not go into possible problems entirely, but blindly believe that Harrison, and look forward to his arbitrage profit for Bahrain. Ironically, in particular, is bankrupt in Bahrain two months ago, that in December 1994, in New York, Bahrain, the financial results at a meeting, the 250 banks around the world, workers in Bahrain, Bahrain will be as Morrison heroes, their report takes time to warm applause. January 18, 1995, Kobe, Japan earthquake, a few days later Tokyo Nikkei index fell sharply, Morrison suffered greater losses on the one hand, on the other hand to buy more large number of Nikkei index futures contracts, hoping at The index rose at an ideal price range. January 30, Morrison 10 million pounds per day, the rate of funding from London, has bought 30,000 Nikkei futures and short selling of Japanese government bonds. February 10, Leeson to Singapore, the history of futures trading volume record has been on hold 55,000 futures and 20,000 by the Japanese government bond contracts. The larger number of transactions, the greater the loss. All of these transactions were involved in the 88888 account. Account transactions, the terms of its inventory to cover part-time, but the margin money required is not hidden. Morrison continued to transfer under various pretexts. The extent of this loose, it is unbelievable. In mid-February, all of the shares of Bank of Bahrain, a capital of 470 million pounds. February 23, 1995, the last day in Bahrain futures, Leeson on efforts to influence the market to a complete failure. The Nikkei stock closed down 17,885 points, while Morrison's long Nikkei futures risk exposure has reached 6 million port contract; the Japanese government bond prices soaring in the occasion of the risk of its short positions have also reached 26,000 contracts. Leeson's losses brought to Bahrain, in Bahrain the next day, senior director of dividends still dream of doing, finally reaching a high of 860 million pounds, causing the world's oldest end of the fate of Barings Bank. Singapore 17 October 1995 published the report on Bahrain bank failures and a feeling Leeson autobiography, and most of the Bahrain event to express our regret. The report concludes the paragraph: "Bahrain group in February 1995 if timely action before, they may also avoid the crash. As of the end of January 1995, even if significant losses, these losses are, after all, only 1 of the final loss / 4. If the management of Bahrain until the bankruptcy is still on before, "88888" ignorance of the account, we can only say that they have been running from the truth. " Morrison said: "a group of people could have exposed the trick and stop me, but they did not. I do not know their criminal negligence and where the boundaries between the level of negligence, it is unclear whether they bear any responsibility to me . but if it is in any other bank, I will not have the opportunity to begin the crime. "