In 1763, Sir Francis Baring founded Barings Bank in London. It was the world's first "commercial bank". It not only provided funds and related advice to customers, but also did business itself. Of course, it also had to bear the risks of buying and selling stocks, land or coffee like other businessmen. Due to its flexible and innovative operations, Barings Bank soon achieved great success in the international financial field. Its business scope is also quite broad. Whether it is refining copper ore in the Congo, trafficking wool in Australia, or digging the Panama Canal, Bahrain Bank can provide loans. However, Bahrain Bank is different from ordinary commercial banks in that it does not develop ordinary customer deposits. business, so its funding sources are relatively limited and it can only rely on its own strength to survive and develop.
In 1803, when the newly born United States purchased the southern state of Louisiana from France, all the funds came from the Bank of Barings. Although Barings Bank had a strong competitor at the time, the Jewish-owned Rothschild Bank, Barings Bank was still the bank of choice for governments, major companies and many customers. In 1886, Barings Bank issued "Guinness" securities. Buyers poured into the bank with application forms in hand, and later had to use police force to maintain it. Many people queued for several hours, bought a small amount of stocks, and then waited for opportunities to sell. out. By the time it was sold the next day, the stock price had doubled.
At the beginning of the 20th century, Barings Bank was honored to acquire a special customer: the British royal family. Due to the outstanding contributions of Barings Bank, the Barings family has received five hereditary titles. This can be regarded as a world record and laid the foundation for Barings Bank's prominent position.
Leason officially started working at Barings Bank on July 10, 1989. Before that, he was a clerk in the liquidation department of Morgan Stanley Bank. After joining Barings Bank, he quickly got the opportunity to work in the Indonesian branch. Because he is patient and perseverant and good at logical reasoning, he can quickly solve many problems that could not be solved before. The work has improved. Therefore, he was regarded as an expert in futures and options settlement. The London headquarters was quite satisfied with Leeson's work in Indonesia and allowed him to be assigned a suitable position overseas. In 1992, the Bahrain headquarters decided to send him to the Singapore branch to establish the futures and options trading department and serve as general manager.
No matter what kind of transaction you make, mistakes are inevitable. But the key is how you deal with these errors. This is especially true in futures trading. Someone may mistake a "buy" gesture for a "sell" gesture; someone may buy a contract at the wrong price; someone may not be cautious enough; someone may buy March futures instead of June futures, and so on. Once a mistake is made, it will cause losses to the bank. After these errors occur, the bank must deal with them quickly and properly. If the error is irreversible, the only feasible way is to transfer the error to a computer called an "error account" account and then report to the bank's headquarters.
When Leeson was working as a futures trader in Singapore in 1992, Bahrain Bank originally had a "wrong account" with an account number of "99905", which was dedicated to handling errors caused by negligence during the transaction process. This was originally a normal error account in the operation of the financial system. In the summer of 1992, Gordon Bowser, who was fully responsible for the liquidation work at the London headquarters, called Leeson and asked Leeson to set up another "error account" to record minor errors and handle them in Singapore by himself to avoid trouble in London. Lisel immediately called Liesel, who was in charge of office liquidation, and asked her whether he could create another file. Soon, Liesel typed some commands into the computer and asked him what account he needed. "8" is a very auspicious number in Chinese culture, so Leeson used it as his auspicious number. Since the account number must be five digits, the "wrong account" with the account number "88888" was born.
A few weeks later, there was another call from the London headquarters, which had installed new computers and required the Singapore branch to follow the old rules. All error records were still reported directly to London through the "99905" account. The "88888" error account was put aside just after it was created, but it became a real "error account" stored in the computer. Moreover, the headquarters had already noticed that there were many errors in the Singapore branch, but Leeson cleverly avoided them. The ignored account "88888" provided Leeson with the opportunity to create false accounts in the future. If this account had been canceled at that time, Bahrain's history might have been rewritten.
On July 17, 1992, one of Leeson’s traders, King, who had only joined Bahrain for a week, made a mistake: when a client (Fuji Bank) asked to buy 20 Nikkei Index When trading futures contracts, the trader mistakenly sold 20 lots. This mistake was discovered when Leeson was conducting liquidation work that night. To correct this error, 40 contracts must be bought back, which means that based on the closing price of the day, the loss will be 20,000 pounds. and should be reported to the head office in London. However, after various considerations, Leeson decided to use the wrong account "88888" to undertake 40 short contracts of Nikkei futures to cover up this mistake. However, in this way, the transaction conducted by Leeson became an "owner transaction", exposing the Barings account to a risky position.
A few days later, as the Nikkei Index rose 200 points, the loss on the short position increased from 20,000 pounds to 60,000 pounds (Note: At that time, his annual salary was less than 50,000 pounds). At this time, Leeson did not dare to report this mistake to the superiors.
Another similar mistake was made by Leeson's friend and executor George. George divorced his wife, immersed in pain all day long, and began to give up on himself. Leeson liked him because George was his best friend and one of the best traders. But soon things started to go wrong for George. Leeson said that all 100 September futures he sold were bought by him, worth up to 8 million pounds, and the vouchers for several transactions were not filled out at all.
If George's mistakes were leaked, Leeson would have to say goodbye to his already satisfactory life. It would be a piece of cake for Leeson to record George's several mistakes in the "88888 account". But at least three questions troubled him: first, how to make up for these errors; second, how to avoid the end-of-month internal audit of the London headquarters after recording the errors in the "88888" account; third, SIMEX asked them to increase margin every day, and they would calculate How much does the Singapore branch lose every day? The "88888" account can also be displayed on the SIMEX big screen. In order to make up for the mistakes of his employees, Leeson transferred the commissions he earned into the account, but the premise was of course that these mistakes should not be too big, and the amount of losses caused should not be too big, but the mistakes caused by George were indeed too big.
In order to make enough money to compensate for all the losses, Leeson took increasing risks. He was engaged in a large number of straddle position transactions. Because the Nikkei index was stable at the time, Leeson made huge profits from these trades. Receive option premium. If you are unlucky and the Nikkei Index moves violently, this transaction will cause Bahrain to suffer huge losses. Leeson did very well for a while. By July 1993, he had turned the loss of 6 million Yingzi in the "88888" account into a slight surplus. At that time, his annual salary was 50,000 pounds and the year-end bonus was nearly 100,000 pounds. If Leeson stops here, Bahrain's history will also change.
In addition to covering up mistakes for traders, another serious mistake was to win over Bonifoy, the largest customer in the Nikkei market. In late 1993, for several consecutive days, the market price soared by more than 1,000 points in a record-breaking manner every day. The computer screens used for clearing records frequently malfunctioned, and countless transactions were backlogged. Because the system was not working properly and transaction records were recorded manually, by the time various errors were discovered, Leeson's losses had reached nearly US$1.7 million in one day. With no other options left, Leeson decided to keep hiding the mistakes.