1763, Sir Francis Bahrain founded the Bahrain Bank in London, which is the first "commercial bank" in the world, providing customers with funds and relevant advice, and also starting its own business. Of course, it has to bear the risk of buying and selling stocks, land or coffee like other businessmen. Due to its flexible and innovative management, Bahrain Bank soon achieved great success in the international financial field. Its business scope is also quite extensive, whether it is refining copper mines in Congo, trafficking wool from Australia or digging Panama Canal, Bahrain Bank can provide loans for it. Bahrain bank, which does not develop ordinary customer deposit business, has limited sources of funds and can only rely on its own strength to survive and develop.
1803, when the newly born United States bought South Louisiana from France, all the funds came from Bahrain Bank. Although Bahrain Bank had a strong competitor at that time-Ross Seto Bank, which was run by a Jew, it was still the first choice of governments, major companies and many customers. 1886 Bahrain Bank issued "Guinness" securities, and buyers poured into the bank with application forms. Later, they had to use the police to maintain it. Many people waited in line for hours, bought a small amount of stocks and then waited for an opportunity to sell them. By the time it was sold the next day, the share price had doubled.
At the beginning of the 20th century, Bahrain Bank was honored to acquire a special customer: the British royal family. Thanks to the outstanding contribution of Bahrain Bank, the Bahrain family has won five hereditary titles in succession. This is also a world record, thus establishing the prominent position of Bahrain Bank.
On June 1989, Lisen officially went to work in Bahrain Bank. Before that, he was a clerk in the clearing department of Morgan Stanley Bank. After entering Bahrain Bank, he quickly won the opportunity to work in Indonesia branch. Because he is patient, persistent and good at logical reasoning, he can quickly solve many unsolved problems and make progress in his work. Therefore, he is regarded as an expert in futures and option settlement. The London headquarters was quite satisfied with Allison's work in Indonesia and promised him peace overseas: a suitable position. 1992, Bahrain headquarters decided to send him to Singapore branch to set up the futures options trading department as the general manager.
No matter what deal you make, mistakes are inevitable. But the key is to see how you handle these mistakes. This is especially true for futures trading. Some people will mistake the "buy" gesture for the "sell" gesture; Someone will buy the contract at the wrong price; Some people may not be careful enough; Maybe someone bought futures in June, entered futures in March, and so on. If something goes wrong, it will cause losses to the bank. After these mistakes happen, banks must deal with them quickly and properly. If the error cannot be recovered, the only feasible way is to transfer the error to an account named "Error Account" in the computer and report it to the bank headquarters.
When Alison worked as a futures trader in Singapore from 65438 to 0992, Bahrain Bank originally had a "wrong account number" with the account number of "99905" to deal with mistakes caused by negligence in the trading process. This was originally a normal wrong account in the operation of the financial system. 1in the summer of 992, Gordon, the head office of London, was in charge of liquidation. Boucher called Alison and asked her to set up another "error account" to record minor mistakes and handle them in Singapore so as not to disturb her work in London. So Allison immediately called Lisell, who was in charge of office liquidation, and asked her if she could create another file. Soon, Lissel entered some commands into the computer and asked him what account he needed. In China culture, "8" is a very auspicious number, so Leeson takes it as his lucky number. Because the account number must be five digits, the "wrong account" of "account number 88888" was born.
A few weeks later, the London headquarters called again, and the headquarters was equipped with a new computer, asking the Singapore branch to follow the old rules and report all the error records directly to London from the "99905" account. "88888" was shelved as soon as it was established, but it became a real "wrong account" stored in the computer. Moreover, the headquarters had noticed that Singapore Branch had many mistakes at this time, but Allison cleverly avoided them. The neglected account number "88888" provided Li Sen with the opportunity to make false accounts in the future. If this account had been cancelled, Bahrain's history might have been rewritten.
1July 992 17, Wang Jin, a trader of Lissen, made a mistake after only staying in Bahrain for one week: when a customer (Fuji Bank) asked to buy 20 Nikkei futures contracts, the trader mistakenly sold 20 contracts. This mistake was discovered in Allison's liquidation work that night. In order to correct this mistake, he had to buy back 40 contracts, indicating the closing price of the day. However, under various considerations, Allison decided to use the wrong account "88888" to undertake 40 short contracts of Nikkei index futures to cover up this mistake. However, in this way, Ellison's transaction became an "owner's transaction", exposing Bahrain Bank to the risk position under this account. A few days later, because the Nikkei index rose by 200 points, the loss of this short position increased from 20 thousand pounds to 60 thousand pounds (note: Allison's annual salary was less than 50 thousand pounds at that time) At this time, Alison didn't even dare to report this mistake to her superiors.
Another mistake exactly like this was made by George, Allison's good friend and executor. George and his wife divorced, immersed in pain all day and began to give up on themselves. Alison likes him because George is his best friend and one of the best traders. But soon George began to make mistakes. Allison indicated that he bought all the 65,438+000 September futures he sold, with a value as high as 8 million pounds, and the vouchers for several transactions were not filled in at all.
If George's mistake gets out, Allison will have to bid farewell to his already satisfied life. Alison can easily record George's mistakes in the "88888 account". But at least three problems bothered him: first, how to make up for these mistakes; Second, how to avoid the internal audit of the London headquarters at the end of the month after the "88888" account was wrongly recorded; Thirdly, SIMEX requires them to add margin every day, and they will calculate how much the Singapore branch loses 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, Allison transferred the commission she earned to her account, provided that these mistakes were not too big and the amount of losses caused was not too big, but George's mistakes were really too big.
In order to earn enough money to compensate for all the losses, Alison took more and more risks. At that time, he was trading a large number of cross positions, because the Nikkei index was stable at that time, and Allison earned an option premium from this transaction. If you are unlucky and the Nikkei index changes greatly, this transaction will make Bahrain suffer huge losses. Alison did well for a while. By July 1993, he had turned the loss of 6 million pounds in the "88888" account into a slight surplus. At that time, his annual salary was 50,000 pounds, and the year-end award was nearly 654.38+10,000 pounds. If Leeson stops here, the history of Bahrain will also change.
In addition to covering up the mistakes for traders, another serious mistake is to win over Bonifay, the biggest customer of the Nikkei market. In the late period of 1993, the market price soared by more than 1000 points every day for several days, and the computer screen used for settlement records frequently broke down, accumulating the accounts of countless traders. Because the system can't work normally, the transaction record depends entirely on manpower. By the time all kinds of mistakes were discovered, Allison's daily loss had reached nearly $654.38 +0.7 million. In the case of no choice, Alison decided to continue to hide these mistakes.
1994, Alison was numb to the amount of loss. The loss of account number 88888 ranged from 20 million to 30 million pounds, reaching 50 million pounds in July. In fact, many of Ellison's transactions at that time were guided by market trends, not out of his expectations of the market. He became a puppet manipulated by his risky position. All he could think of at that time was which direction the market changes would make him a winner, and he could make up for the loss of account No.88888, so he tried to influence the market changes in that direction.
Alison's autobiography describes: "I am ashamed of being such a liar-it was a small mistake at first, but now it has surrounded me like cancer ... My mother never wanted to raise me like this."
From the institutional point of view, the most fundamental problem in Bahrain lies in the confusion of trading and liquidation roles. 1992 After going to Singapore, Lisen worked as the manager of the futures trading department and the clearing department in Bahrain and Singapore. As a trader, Allison should have bought and sold derivatives on behalf of Bahrain's customers and engaged in arbitrage for Bahrain. Basically there is not much risk. Because of the agent operation, the risk is borne by the customer himself, the trader only earns commission, and the arbitrage only earns the price difference between the markets. For example, Leeson used the different prices of Singapore and Grand Bazaar to make profits for Bahrain in a short time. General banks allow their traders to hold a certain number of risk positions. However, in order to prevent traders from being exposed to excessive risks in their banks, such permission is usually set quite limited. Through the daily settlement work of the clearing department, banks can also effectively understand and master the situation of their traders and risk positions. Unfortunately, however, Ellison is responsible for both trading and liquidation.
In fact, a week before Lisson arrived in Singapore, there was a communication inside Bahrain, which caused concern about the possible disaster caused by this issue. But this concern was ignored, so that after Allison took office, she still worked in the trading and clearing department. If Ellison is only in charge of the clearing department, as he should have done, then he has no need or opportunity to cover up the mistakes of other traders, and it will not lead to an uncontrollable situation in the end.
When the loss reached 50 million pounds, the headquarters of Bahrain Bank sent someone to investigate the accounts of Leeson. In fact, there is a balance sheet every day, and there are obvious records every day, which shows Alison's problem. Even at the end of the month, Alison's false accounts to cover up the problem are easy to find-if Bahrain really has a strict censorship system. Alison pretends that Citibank has a deposit of 50 million pounds, but this 50 million pounds has been misappropriated to make up for the loss of account 88888. After checking the accounts for a month, no one checked the accounts of Citibank, so that no one found that there was no deposit of 50 million pounds in Citibank's account.
With regard to the balance sheet, Peter Bahrain, chairman of Bahrain Bank, commented in March 1994 that the balance sheet is useless because its composition may undergo major changes in a short time. Therefore, Peter Bahrain said, "it is naive and ignorant to think that more data on the balance sheet can increase the understanding of a group."
In addition, on June199565438+1October1KLOC-0/,the Audit and Taxation Department of Singapore Futures Exchange sent a letter to Bahrain, raising some questions about the funds needed to maintain account No.88888, and at this time, Li Sen also asked London to remit more than 654.38+million pounds every day. In fact, from 1993 to 1994, the investment of Bahrain Bank in SIMEX and Japan market exceeded11000000, which exceeded the limit of 25% for the total overseas funds of British banks stipulated by the Bank of England. To this end, the Bank of Bahrain held several talks with the Bank of England. 1In May 1994, the Bank of England obtained the "acquiescence" of the senior officials in charge of the supervision of commercial banks, but this acquiescence did not leave any supporting documents, because it violated the internal regulations of the Bank of England and did not consult the top leaders of the relevant departments of the Bank of England.
The most incredible thing is that after Bahrain found a balance sheet showing a difference of 50 million pounds at the end of 1994, it was still not alert to the looseness and negligence of its internal control. During the two months from the discovery of the problem to the subsequent collapse of Bahrain, many high-level and deep-seated personnel in Bahrain paid attention to this problem, and even the Audit Department of Bahrain headquarters officially investigated it. But these surveys were deceived by Leeson in a very easy way. Alison described this period like this: "I find it incredible that no one came to stop me." People in London should know that my figures are all false. These people should know that the cash I ask from London headquarters every day is wrong, but they still pay the money. "
From the perspective of financial ethics, if all the above-mentioned financial practitioners who participated in the "Bahrain incident" are graded, they should be given a failing score. Many senior managers in Bahrain, in particular, don't go into the possible problems at all, but blindly trust Li Sen and expect him to make money for Bahrain arbitrage. Ironically, two months before Bahrain went bankrupt, that is, 1994 12, at a conference on Bahrain's financial achievements held in new york, 250 staff members of Bahrain Bank all over the world regarded Li Sen as a hero of Bahrain and gave him a long and warm applause.
199565438+1October 18, Kobe earthquake in Japan, and the Nikkei index in Tokyo fell sharply in the following days. On the one hand, Alison suffered more losses, on the other hand, she bought a larger number of Nikkei futures contracts, hoping that the Nikkei index would rise to the ideal price range. 65438+1On October 30th, Allison obtained funds from London at the rate of100,000 pounds per day, and has bought 30,000 Nikkei index futures and shorted Japanese government bonds. On February 10, Allison held 55,000 Nikkei futures and 20,000 Japanese government bond contracts, which was a record for the Singapore Futures Exchange. The more transactions, the greater the loss.
All these transactions are credited to account 88888. The transactions in the account are hidden by the inspection agency, but the funds needed for additional margin cannot be hidden. Alison continued to transfer funds under various pretexts. This looseness is unbelievable. In mid-February, the total share capital of Bahrain Bank was only 470 million pounds.
On February 23rd, 1995, the last day of Bahrain futures, Allison's efforts to influence the market direction completely failed. The Nikkei stock price closed down to 17885, and Risen's long-term risk position in Nikkei futures has reached more than 60,000 lots; While the price of Japanese bonds has been rising all the way, its short risk position has reached 26,000 lots. The loss brought by Leeson to Bahrain finally reached a high of 860 million pounds when Bahrain executives were still dreaming of dividends the next day, which led to the end of the oldest Bahrain bank in the world.
Singapore's June1995+1October 17 report on the bankruptcy of Bahrain Bank and a feeling in Li Sen's autobiography can also best express our regret over the Bahrain incident. A passage in the conclusion of the report, "If Bahrain Group can take timely action before February 1995, it is still possible for them to avoid collapse. By the end of 1995 1, even if heavy losses have occurred, these losses are only final losses 1/4. If the management of Bahrain knew nothing about the "88888" account before the bankruptcy, we can only say that they have been avoiding the facts. "
"There were a group of people who could have exposed and stopped my tricks, but they didn't," Leeson said. I don't know the boundary between their negligence and criminal negligence, and I don't know whether they are responsible for me. But if it was in another bank, I wouldn't have a chance to start this crime. "
Cite http://219.159.82.16/kjx/upload/cwgl/8/anli1.htm.
The case itself is the best explanation.