Cai Zhong. com

Leverage Effect —— From Personal Mistake to Bank Failure

From Ellison's personal misjudgment to the collapse of the entire Bahrain Bank, the investment risk has doubled with the return on investment in financial derivatives. This is determined by the "leverage" characteristics of financial derivatives themselves.

The bankruptcy of the famous Bahrain Bank is a classic case of the failure of financial derivatives operation.

There is a striking similarity between the Cao incident and the Bahrain Bank incident, that is, the huge losses caused by personal mistakes at the top. The necessity of establishing a restraint mechanism for senior personnel in institutions is the same enlightenment brought to the industry by the two incidents.

1On February 26th, 1995, Nick Leeson, the futures manager of Singapore Bahrain Company, failed to invest in Nikkei 225 stock index futures, resulting in huge losses for Bahrain Bank, with a total loss of US$ 654,380.4 billion. In the end, he could not continue to operate and declared bankruptcy. Since then, this 233-year-old commercial bank with good performance has disappeared in the City of London and even the global financial community. At present, the bank has been taken over by the Dutch International Bank Insurance Group.

Bahrain Bank Group was once the oldest and most prestigious commercial banking group in London, England. It is famous for its stable development and good reputation, and its customers are mostly dignitaries. Queen Elizabeth II was one of her clients. Bahrain Bank Group specializes in enterprise financing and investment management, and its business outlets are mainly in emerging countries and regions in Asia and Latin America. The pre-tax profit of Bahrain Bank in 1994 is still as high as1500,000 US dollars, and the bank once hoped to expand its business in China. However, a financial speculation the following year completely shattered all the development plans of the bank.

The direct cause of the bankruptcy of Bahrain Bank is that Nick Leeson, the futures manager of Bahrain Company in Singapore, misjudged the trend of Japanese stock market. 1995 65438+ 10, the Japanese economy showed a recovery momentum. Allison is optimistic about the Japanese stock market, buying a large number of futures contracts in Tokyo and Osaka respectively, hoping to make a big profit when the Nikkei index rises. Unforeseen things happened. June199565438+1October 17 The sudden Hanshin earthquake in Japan hit the recovery momentum of the Japanese stock market, and the stock price continued to fall. As a result, the loss of Bahrain Bank was as high as $6,543.804 billion, which was almost all the assets of Bahrain Bank at that time. This once brilliant financial building collapsed. The news of the bankruptcy of Bahrain Bank Group shocked the international financial market, and the stock markets everywhere were affected to varying degrees. The exchange rate of the pound fell sharply, and the exchange rate against the mark fell to the lowest level in history. The hidden influence of Bahrain Bank incident on European and American financial industry is immeasurable.

Things look simple on the surface, and Alison's misjudgment is the fuse of the whole incident. However, it is this incident that has attracted close attention all over the world, and the high risk of financial derivatives has been widely recognized. From Ellison's personal misjudgment to the collapse of the entire Bahrain Bank, the investment risk has doubled with the return on investment in financial derivatives. This is determined by the "leverage" characteristics of financial derivatives themselves.

Since the collapse of Bahrain Bank, European and American financial circles have begun to pay attention to how to restrain the personal behavior of members within the organization to avoid irreparable huge losses caused by personal behavior. The discussion in the industry about perfecting the supervision mechanism and restricting personal authority has never stopped.

Note: Bahrain, not Paris.