AbstractIn February of 1995, one man single-handedly bankrupted the bank that financed the Napoleonic Wars, Louisiana Purchase and the Erie Canal. Founded in 1762, Barings Bank was Britains oldest merchant bank and Queen Elizabeths personal bank. Once a behemoth in the banking industry, Barings was brought to its knees by a rogue trader in a Singapore office. The trader,Nick Leeson, was employed by Barings to profit from low risk arbitrage opportunities between derivatives contracts on the Singapore Mercantile Exchange and Japans Osaka Exchange. A scandal ensued when Leeson left a $1.4 billion hole in Barings balance sheet due to his unauthorized derivatives speculation, causing the 233-year-old banks demise.

AcknowledgementWe take this opportunity to thank our faculty Ms. Neeti Shikha, Professor, FORE School of Management, New Delhi as we submit this report as a part of the course titled Corporate Governance. If not for her invaluable guidance and assistance, this project would not have been possible. It was only after studying and analysing the various corporate governance failures like this that we realized the importance of having a good governance in place. This case study has helped us to understand the various nuances of corporate governance and how important it is not only for the smooth functioning of an organisation but also, of the economy on the whole.

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About barings BankBarings Bank was an English merchant bank based in London, and one of the world's oldest merchant banks. It was founded in 1762 and was owned by the Baring family of German origin.[1] The bank collapsed in 1995 after suffering losses of 827 million ($1.3 billion) resulting from poor speculative investments, primarily in futures contracts, conducted by an employee named Nick Leeson working at its office in Singapore.ING, a Dutch bank, purchased Barings Bank in 1995 for the nominal sum of 1[13] and assumed all of Barings' liabilities, forming the subsidiary ING Barings. In 2001, ING sold the U.S.-based operations to ABN Amro for $275 million, and folded the rest of ING Barings into its European banking division.[16] This left only the asset management division, Baring Asset Management. In March 2005, BAM was split and sold by ING to MassMutual, which acquired BAMs investment management activities and the rights to use the Baring Asset Management name, and Northern Trust, which acquired BAMs Financial Services Group.[17][18] Barings Bank therefore no longer has a separate corporate existence, although the Barings name still lives on as the MassMutual subsidiary, Baring Asset Management.[19] Baring Private Equity International, which included investment teams in Asia, India, Russia and Latin America was acquired by its respective management teams, which today include Baring Vostok Capital Partners in Russia, GP Investments in Brazil as well as Baring Private Equity Asia and Baring Private Equity Partners India.

About Nick LeesenNicholas "Nick" William Leeson[2] (born 25 February 1967) is a former derivatives broker whose fraudulent, unauthorised speculative trading caused the spectacular collapse of Barings Bank, the United Kingdom's oldest investment bank, for which he was sentenced to prison.[3] Since leaving prison in 1999 he became, and subsequently resigned as, the CEO of Irish football club Galway United, and is active on the keynote / after-dinner speaking circuit where he advises companies about risk and corporate responsibility.Coming from a relatively modest background (his father is a plasterer), Nick Leeson did not follow higher education, but this is not a requirement needed to find a job in a bank.His adolescence was spent at Watford where he attended high school, whereafter he began to work at Coutts & Company and then spent two years at Morgan Stanley. Here he took up a position as an operations assistant, allowing him to become familiar with the financial markets which was gaining more significance towards the end of the 1980s.Leeson then joined Barings, here he quickly made a good impression within the respectable establishment. In 1992, he was appointed general manager of a new operation in futures markets on the Singapore International Monetary Exchange (SIMEX).[6] Barings had held a seat on SIMEX for some time, but did not activate it until Leeson was sent over. Leeson was sent to Singapore after he was denied a broker's licence in the United Kingdom because of fraud on his application.[7] Neither Leeson nor Barings disclosed this denial when Leeson applied for his licence in Singapore. A relentless worker, Nick Leeson quickly became a renowned operator of the derivative products market on the SIMEX, and is considered as one of those who moves the market.

How it all startedWhat went wrongCorporate Governance FailuresThe AftermathReferencesLondon beginning of the year 1990. The prestigious Barings Bank sends one of their traders, a young Englishman named Nick Leeson born in February 1997, to work in its Singapore branch. Barings is one of the most reputable financial institutions in all of the United Kingdom.Founded in 1762 by the Dutch Johann Baring, who had immigrated to England, Barings formed part of the countrys history. Even the Queen of England was among its clients.From 1992, Leeson made unauthorized speculative trades that at first made huge contributions for Barings - up to 10% of the banks profits at the end of 1993. He became a star within the organisation, earning unlimited trust from his London bosses who considered him nearly infallible.Barely aged 25, Leeson had a professional situation that he had never dreamed of, even though he had entered into a professional life about ten years too early.However, he soon lost money in his operations and hid the losses in an error account, 88888. He claimed that the account had been opened in order to correct an error made by an inexperienced member of the team.At the same time, Leeson hid documents from statutory auditors of the bank, making the internal control of Barings seem completely inefficient. At the end of 1994, his total losses amounted to more than 208 million pounds, almost half of the capital of Barings.On January 16th, 1995, with the aim of "recovering" his losses, Leeson placed a short straddle on Singapore Stock Exchange and on Nikkei Stock Exchange, betting that Nikkei would drop below 19 000 points. But the next day, the unexpected earthquake of Kob shattered his strategy. Nikkei lost 7 % in the week while the Japanese economy seemed on the verge of recovery after 30 weeks of recession.Nick Leeson took a 7 billion dollar value futures position in Japanese equities and interest rates, linked to the variation of Nikkei. He was "long" on Nikkei. In the three days following the earthquake of Kob, Leeson bought more than 20 000 futures, each worth 180 000 dollars.He tried to recoup his losses by taking even more risky positions, betting that the Nikkei Stock Exchange would make a rapid recovery; he believed he could move the market but he lost his bet, worsening his losses. They attained an abysmal low, (1,4 billion dollars), more than double the banks capital who is now bankrupt because its own capital would be insufficient to absorb the losses generated by Leeson.When taking into consideration the total losses and the initiatives taken by Leeson, how can one explain the lack of reaction from a bank as reputable as Barings? There were several factors that played to Leesons advantage:In Singapore, Leeson enjoyed a freedom within the local office - even an internal memo from 1993 proved to have no consequence; this would shown the lack of surveillance in this office as well as the risk of possible disaster.Whats more, Leeson operated in both the dealing desk (front office) and the back office. So he confirmed and settled trades transacted by the front office - which he himself passed! He was therefore able to hide what he wanted.The profits brought in by Leeson instilled confidence in management who lacked knowledge in subtile trading techniques and financial markets, and therefore did not pose any questions at Leeson. They did not seem to be aware of the risks incurred by the bank.Leeson made false declarations to regulation authorities which allowed him to accumulate his losses and to avoid a margin call which should have audited losses from day to day. It is true that these false declarations did not attract the attention of control authorities in Singapore.Barings benefited from special privileges from the Bank of England (an exception to the rule that a bank could not lend more that 25% of its capital to any one entity.)Finally, nothing was detected by statutory auditors and control interns, despite the fact that Leeson had hidden certain losses and had forged documents - both of which should have drawn attention to him. This proves that the account regulation procedures within the institution were completely inefficient.Feeling that his losses had become to great and seeing that the bank was on the verge of a crisis, Leeson decided to flee, leaving a note which read Im sorry. He went to Malaysia, Thailand and finally Germany. Here he was arrested upon landing and extradited back to Singapore on 2 March 1995. He was condemned to six and a half years in prison but was released in 1999 after a diagnosis of colon cancer. In 1996 he published an autobiography Rogue Trader in which he detailed his acts leading to the collapse of Barings. The book was later made into a film starring Ewan McGregor as Leeson.The fall of Barings caused an unprecedented crisis within the city. Nine senior managers were accused of having badly managed the situation and in March 1995 the bank (only the parent company) was bought by Dutch group ING. It was the less than glorious disappearance of a bank founded in the 18th century after 223 years of existence.The bankruptcy of Barings had a world-wide impact, affecting even those who were not among the financial circles. The public expressed concern about the use of by-products and about the "madness of financial markets" where young "golden boys" of less than 30 years can cause the demise of financial institutions which nevertheless had experienced a dozen crises during two hundred years.At the end of the day, there are always risks in the financial markets that even teams with the best specialists who hold Nobel prizes are not able to avoid.This affair has nevertheless lead to the creation of new jobs such as "compliance officers," has strengthened the role of risk control within investment banks and has created a separation between Front, Middle and Back Office functions.