ColdFusion - How a 28 Year Old Man Destroyed England’s Oldest Bank

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Starting point is 00:00:28 hear that it's your money calling it wants a promotion elevate your savings with the scotia high-interest savings account always earn high regular interest rates that grow the more you save and invest conditions apply visit scotia bank dot com slash h-i-sa to learn more scotia bank you're richer than you think hi welcome to another episode of cold fusion over 230 years through world wars the rise and of nations and industries, revolutions and uprisings. Bairings Bank persevered. Founded in 1762, Bairings Bank was an English institution associated with class, longevity and strength, so much so that even the Queen of England had an account with them. Then, in 1995, this grand banking legacy was destroyed, brought down by a single rogue trader by the name of Nick Leeson.

Starting point is 00:01:31 So, let's explore how a 28-year-old from Hertfordshire was able to single-handedly destroy an institution. Nick Leeson was born in Wardford, Hertfordshire, to a middle-class home. He was a confident but unimpressive student. Despite his average educational performance, he was eventually able to secure a job with Morgan Stanley. He worked in their futures and options department, giving support to the traders on the front line. In 1989, two years after starting with Morgan Stanley, Nick Leeson approached his supervisor and asked to be promoted. Leeson wanted to be a trader and he felt that he deserved the promotion. Unfortunately, his manager didn't agree and the request was turned down.

Starting point is 00:02:25 But Leeson knew what he wanted, and subsequently, he quit Morgan Stanley. On his quest to become a stock trader, he would come across Bairing's bank and send in his application. Apparently he'd never heard of the bank before submitting the application. At that stage, I probably would be happy to say that I'd never heard of bearings. But it was a famous old bank. So, there's no bearings in Watford. Bearing's no ordinary bank. It catered to the most affluent class of people.

Starting point is 00:02:56 In the banking industry, the bearing's name was respected. It was the safest of all banks, and they could raise capital very easily. Though, behind the scenes, its operations were struggling to keep up with the modern banking world. Leeson described the securities trading department of Berings as being in stark contrast to modern banks like Morgan Stanley. Just a totally different environment. There was, you know, at Morgan Stanley everything was new. You know, all of the equipment was new. The furniture was new.

Starting point is 00:03:27 Berings, everything is, you know, just tacky, I suppose. I can't describe it any other way. From his position as one of the bank's bookkeepers, it didn't take him very long to find flaws in how the bank operated. Bering's bank was crumbling during a time when most other financial institutions were thriving. Feeding on the good standing that comes with two centuries of global trading. It would survive, though, much like it always had. But what bering...

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Starting point is 00:04:22 Experings wouldn't survive would be hiring Nick Leeson. While many in the industry, including Leeson, possess the intelligence to succeed, Leeson also had a confidence and away with people that he would wield like a secret weapon. He was charming, friendly and personable to his colleagues. But not just for the sake of being polite, he saw his co-workers not as potential companions, but rather a means to an end. Despite working at banks for multiple years, he never considered his co-workers as friends.

Starting point is 00:04:55 He did not like them, he did not respect them, but he knew that sometimes he needed them to get what he wanted. It's very easy for me to get on with people, but I don't necessarily have to like you. or any of the people that I work with to get on with them. So I come in, I do my job, I do it to the best of my ability, and then at the end of the day, if you're going to ask me out for a drink, I'm not going to go out for a drink with you, because I don't like you.

Starting point is 00:05:22 Nick Leeson impressed his superiors at bearings, with his keen eye for identifying and solving issues within the bank. Not long into his employment, he was sent overseas to chase down massive sums of money. These were debts that were long overdue but never followed up on. Bearing's bank had a habit of making deals that would fall between the cracks, and it was Nick Leeson's fresh eyes that would hunt down these deals and claim back what the bank was owed. Leeson managed to find close to £100 million, the equivalent of twice of that today,

Starting point is 00:05:54 when factoring inflation. He describes this kind of mismanagement as being fairly typical for bearings. Things were looking good for Leeson. He was impressing his employees. And while in Jakarta, he met a fellow Bearing staff member by the name of Lerings. Lisa Sims. For the first time in his career, he found a colleague that he genuinely liked, and in 1992, the two of them married. That same month, his years of hard work finally paid off when Berings offered him the position of a trader. He would be in charge of a newly

Starting point is 00:06:25 founded Futures Division in Singapore. This was the opportunity that Leeson had been waiting for, and quite possibly the worst decision that Berings had ever made. Approved to trade in Singapore, and having convinced his wife Lisa to move, it was go time. Trading primarily on the Niki, Japan's top 225 company stock index, Nick thoroughly enjoyed the stress and pressure of futures trading, essentially betting on if the price will rise or fall. If the market went the way he predicted, he made money. If not, he rapidly lost money.

Starting point is 00:07:02 He was confident in himself and beloved by his staff. But later that year, the market began fluctuating violently, and Leeson's team started making mistakes. These bad bets were adding up, and if they weren't rectified, bearings stood to lose large sums of money. Out of the fear of losing the job that he worked... Hear that? It's your money calling.

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Starting point is 00:08:01 Wayfair, every style, every home. It's so hard to obtain and fueled by his own self-confidence. Nick decided to hide the losing bets from his employers back home. In order to do this, he altered the software of a separate hidden account so that his bosses in England couldn't keep track. He named this account the 5-8ths account. Sir Leeson kept his losing trades active, but hidden. He assumed that inevitably he'd be able to cancel out the losses with future wins. But there was only one problem with this.

Starting point is 00:08:33 Margin payments. While the losing trades remained open, payments still had to be made in order to keep the trades going. he was going to need external funding. He just needed enough money to keep the failed trades going and when the market turned around, he'd be home free. Leeson would hide his mistakes and then when the market went his way, he would fix his mistakes in private.

Starting point is 00:08:57 Nick had to keep digging into a deeper pit of lies. His bosses over in England could never find out what happened. He asked his superiors for funds to cover stock futures that he'd bought for clients. Only this time, the clients didn't exist. Trusting that Leeson had the bank's best interests in mind, the branch over in England happily sent him ever increasing amounts of money without ever thinking to double check where the money was actually going.

Starting point is 00:09:24 Surprisingly, for a time, the system worked. Leeson described living with the lies as easy after the first two days. From the first time that I do anything, I'm not expecting to survive anything more than two days. To me it's obvious. If they can't see it after two days, then who says they're going to do it? going to see it after 200 days, 500 days, a thousand days. You don't get confident but you're getting away with it. As Nick Leeson continued to cover up his trading mistakes, Bairings itself was making

Starting point is 00:09:54 massive losses, and that was just the amount they knew about. Something had to be done, so they recruited Peter Norris. He was to oversee operations. From the moment he began looking at the bank's records, Norris was shocked at what he found. The books were a mess. How shocked were you? by the lack of control in that when you got in there and began to work that? I was shocked because I didn't feel that it should have been allowed to reach that point. He saw a bank on the brink of collapse with ever-increasing debt and a loose grip on its standing as a powerful player in the financial world. He brought in a team to clean up the mess. But the dire situation that shocked Norris was merely a fraction.

Starting point is 00:10:42 of the problem. He was yet to find the hidden account in Singapore that would eventually collapse the entire bank. Meanwhile, Leeson's plan to gradually cover his losses and emerge victorious had not gone to plan. By the end of 1992, his losses had only grown, now amounting to four million pounds. Seeing real Canadian superstore has everything you need this back-to-school season. Save on lunchbox savers like Ziggy's sliced delimed me products for always 375 and get life brand pure Vita shampoo or conditioner for eight dollars each. At real, Real Canadian Superstore. When you're ready, we're ready with a whole world and more.

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Starting point is 00:11:55 he bought hundreds of additional futures in hopes of covering his losses. He bought so many orders that if the market was to move in his favor, it would completely wipe out his debt. He believed he could make his money back without anyone ever finding out what he had done. At this point, he was struggling to sleep at. at night. But surprisingly, it worked. By July of 1993, he had covered his losses. Leeson described the past nine months as a living nightmare, but he had done it and come out relatively unscathed. Unfortunately for all involved, Leeson had not learned his lesson. In fact,

Starting point is 00:12:34 what he had learned was how to commit fraud and get away with it. Rather than take away a valuable lesson in risk management, Leeson saw an opportunity to get filthy rich. Nick was convinced by his past successes that he would eventually be able to trade out of any amount of losses and maintain his reputation as an industry legend. In his mind, he was a genius that had beaten the system, but in reality, what had happened was just dumb luck. Meanwhile, back in England, Berings was recouping losses and the work of Peter Norris was paying off. Things were going well and the bank was recovering. But the work wasn't over, so Berings brought in a new head of in-house trading, Rob Baker.

Starting point is 00:13:14 Baker was a smart man, and he valued tight oversight, unlike his predecessors. He was cynical of profits that couldn't be easily accounted for. Because of this, Nick Leeson's department quickly caught his eye. You see, Bering's Bank was paying Nick Leeson to fund requests for new clients, and they noticed that some of these clients, who actually, in reality, didn't exist, were not keeping up with their fees. An internal audit was ordered, and in July of 1993, the auditors flew to Singapore. By the end of 1993, Leeson had found himself in the same trouble as last time, only this time, doubling up his strategy didn't work.

Starting point is 00:13:58 By the time Baker came face-to-face with Leeson, his secret account was now hiding losses of £94 million. Nick would sometimes lose a million pounds in a single day. Rob Baker saw through Leeson's confidence, recognising a struggling and immature man who didn't take too kindly to being overseen. But what he could not have predicted was what was truly going on behind the scenes. Leeson was now extremely worried. He understood that if the auditors found just one document referring to the secret five-eighths account where his losses were hidden, his entire scheme would unravel. But luck would be in his favour again, as the auditors surprisingly found nothing. They come in and they don't test any records.

Starting point is 00:14:43 So I can't be happier. They didn't test one record. One report. Hear that? It's your money calling. It wants a promotion. Elevate your savings with the Scotia high interest savings account. Always earn high regular interest rates that grow the more you save and invest.

Starting point is 00:15:04 Conditions apply. Visit Scotiabank.com slash H-I-SA to learn more. Gosha Bank. You're richer than you think. Yeah, I mean, it's not an audit. Leeson would later state that it was general incompetence from the Bering's staff that allowed him to go on undiscovered. But Rob Baker has a different theory. Nick was supposedly making the bank a bunch of money,

Starting point is 00:15:28 so they didn't bother to question the fact that Nick was both the head of Singapore trading operations and in charge of the Singapore accounting. And despite the strange accounts not paying any fees, Bearing's thought, hey, if it's making us money, don't fix it. By September of 1994, the Secret 5-8ths account was hiding losses of 160 million pounds. Leeson's fraud entered new levels of complexity. He decided to use the secret account to buy futures from himself at extremely discounted prices, allowing him to fake massive profits.

Starting point is 00:16:05 Nick was now in a deep, vicious, unsustainable cycle. It could only continue so long as he had access to the fund that Berings would send him for fake. clients. His life became a runaway train. In secret, he was losing millions daily, but in public, he was becoming the star trader that he always wanted to be. Neither could exist without the other. At this time, Leeson became known as the king of the exchange. He was making a name for himself and had convinced the world that he was a success. In December of 1994, Leeson was flown to New York. Here, Berings held a traders conference, and Nick was the star. After all, according to the records, he had made the bank £28 million that year alone.

Starting point is 00:16:53 He was the poster boy of Bering's Bank and celebrated for a success. But some of the other traders weren't as excited. They had done their own maths, and something didn't add up. But the Bering's Bank executives paid no attention to these doubts. The bank was on the way up. It even got to the stage when Nick was asking for hundreds of thousands of pounds per day for margin payments, and without question it was given to him. By the end of 1994, based solely on lies, confidently told and expertly hidden,

Starting point is 00:17:25 Bearing's bank had transferred 75% of their entire capital into the hands of one man, Nick Leeson, 330 million pounds. The pressure had become too much for Leeson, and he had finally reached breaking point. How could he live a lie so massive? On a Christmas trip to Ireland, he told his wife that he did not want to return back to Singapore, but Lisa didn't understand why he would turn down such a great opportunity for their family. Nick couldn't bring himself to tell her the truth. So, he returned to Singapore in the new year.

Starting point is 00:18:00 Why lie? I'm his wife. Why should he lie? I mean, I suppose lots of wives think that when they find out their husbands have been having an affair and they think, well, you know, they've been leading a double life. And that's what it feels like. Not that Nick would know Nick's... When your advertising operations fall out of sync, everything else follows. Spotify and Accenture are working together to reinvent the rhythm of ad sales, using automation, analytics, and smarter workflows to simplify campaign delivery and access better data across the business. The result?

Starting point is 00:18:35 Less time spent on operations, more time connecting brands with the moments and fandoms that matter most. Learn more at Accenture.com slash Spotify. Hear that? It's your money calling. It wants a promotion. Elevate your savings with the Scotia high-interest savings account. Always earn high regular interest rates that grow the more you save and invest. Conditions apply.

Starting point is 00:19:01 Visit Scotia Bank.com slash H-I-SA to learn more. Scotia Bank. You're richer than you think. Had an effect. Feels like Nick. Well, Nick was leading a double life. There was no economic or political factors impacting the Japanese market. So Nick Leeson bet on stability.

Starting point is 00:19:23 and for a while it was working. For a couple of weeks, he was making a profit as the market remained steady. If this kept going, his losses could be erased and he would be victorious once again. But on January 17th, at 5.46am, a massive earthquake struck the Japanese city of Kobe. It killed 6,000 and displaced 45,000. The Japanese NICA stock index, in which Nick was trading, absolutely crumbled. It was bad, you know. But again, it's living to fight another day, really.

Starting point is 00:19:56 I mean, you know, without the choice of running away from it, you know, I had to... Berings were still paying me money. Don't forget. It's still paying me masses of money, you know. I mean, we'd ask for sometimes for $100 million. They'd pay it. With the market running away from him, he was desperate. He made one final bet, buying thousands more futures contracts in an attempt to prop up the market.

Starting point is 00:20:21 He was hoping that this move would be substantial enough to fight against the crash. It was another failed gamble. In a single day, he lost a further 50 million pounds, but he continued down this path. He asked the bank for more money which they would provide on the basis of falsified profits. Fictitious profits manufactured from the secret 5 eighths account. While Burings continued to believe Leeson's deception, they were happy with his falsified profits and trusted that he was doing well. They believed that he was taking advantage of the chaotic market since the earthquake and making huge sums of money for everyone involved.

Starting point is 00:20:59 At one stage, auditors found a 50 million pound loss that Nick forgot to hide. Frantically, Nick forged a bank loan document with scissors and glue to cover it up. Amazingly, the auditors believed the document, even though it had from Nick and Lisa at the top, the fax signature from their home machine. Then, finally, after all of the documents, after all of the document, even though it had from Nick and Lisa at the top, the fax signature from their home machine. Finally, after all the close calls, audits, unimaginable debt, and luck, both good and bad, Leeson's time was up. On the 17th of February, a single clerk in Singapore noticed some discrepancies in Leeson's accounts and brought them to his attention.

Starting point is 00:21:39 After failing to deflect the clerk's inquiries for a week, he knew that this time he couldn't make this one go away. Feeling that the walls were finally closing in, Nick told the clerk that his wife was done well, he had to go and visit her, and he'd be back in 45 minutes. Of course, this was a lie. Nick frantically rushed home to collect his wife, packed up his belongings, and they both drove to the airport and boarded a flight to a luxury resort in Malaysia. That week, with Nick gone and not being able to provide any more distractions, the Bering's officers from London were finally able to access one of Leeson's accounts. It was a horrific disaster. They knew straight

Starting point is 00:22:17 away that bankruptcy was inevitable. So senior managers within Bering's Bank knew that there were vast differences between what Leeson was asking for and what you were being given. Yet you were never told? Yeah. Should you have been told? Yes, I should. I should. Why didn't you know? Well, fundamentally because it wasn't raised in that way. Why not? I don't know. I don't know. Bairings appealed to England's central bank for support. They were desperate for a bailout before the markets opened again on Monday.

Starting point is 00:23:02 But it was impossible. Leeson's losses had multiplied to £830 million, the equivalent of $2 billion US dollars today. It was clear that the bank couldn't be saved. After two long centuries of banking, bearings collapsed. On the 20th of November 1995, Leeson was arrested in Germany and extradited to Singapore. He was charged with two counts of deceiving the bank's auditors and of cheating the Singapore Exchange. He received a six and a half year prison sentence, but he was released after four years for good behaviour. In all of this, Leeson maintains a dismissive and blameless attitude towards

Starting point is 00:23:45 the events that caused the crash. In his mind, the fault lies with those who ran bearings and not him. Why didn't those people who ran bearings come to you and say, what are you doing? Because they're stupid. They don't understand the big. and they should never have been in the position that they were in, especially people like Tony Horse. He was supposed to be controlling the global treasury function. He was supposed to understand derivatives. He didn't.

Starting point is 00:24:11 And he would pay the money every single day and would accept, you know, pretty ridiculous explanations from me. It wouldn't happen at Morgan Stanley. At Berings, they had a lot of idiots, basically in every one of the controlling functions. And you were creating a large amount of profits. to province? Fictitiously, yeah. It's a complete amazement, but as you get to know the people at Berings, you can then

Starting point is 00:24:37 understand the amazement. A lot of them are just bumbling fools. Although his arrogance is distasteful, the law was inclined to agree with him. The courts found Berings to be responsible for the deficit in internal auditing and risk management. Their carelessness allowed the fraud to spiral out of control. But this shouldn't distract from the fact that hordes of people lost their jobs and their money during the bearings failure.

Starting point is 00:25:01 In the fallout from the collapse, Dutch Bank ING bought Bearings for a single pound. They later sold off various assets. Today, Bearings exists only as a cautionary tale. A lesson to banks across the globe that accountability and careful oversight comes before blind trust and the thrill of profits. And a reminder to long-standing institutions that nothing is eternal. His life has been consistently strange since his imprisonment. Being somewhat of a household name for older generations, he has dipped in and out of the public

Starting point is 00:25:36 eye even competing in the 2018 season of Celebrity Big Brother. Going into the Big Brother house, we're going to be in a confined environment. There are things that are going to annoy me about people, I'm sure. He went on the run and became, at the time, the world's most wanted man. So at the time it was crazy. I was on every news channel that you can imagine. newspapers were all covering the story. Interpol were looking for me.

Starting point is 00:26:01 So wherever you turned around, there was a picture of me. So that, my friends, is the wild and twisting story of Nick Leeson, a story of how one man got himself into an ever deeper hole until he destroyed the oldest bank in England. So thanks for watching. If you enjoyed the episode, be sure to subscribe to Cold Fusion. I cover anything in science and technology, business and history. So what do you guys think about this all?

Starting point is 00:26:28 Let me know in the comment section below. If you do want to discuss the video a bit further, head on over to the Cold Fusion Discord. So this has been to Gogo and you're watching Cold Fusion. So until next time, cheers. Have a good one. Want to talk ETS with the people behind them? Join me, Etienne Jean-Cabouchard on the upside ticker talk. We dive into what's moving markets with timely analysis, trends and answers to ETF questions

Starting point is 00:27:15 you've actually been thinking about. Hit play on the upside ticker talk and elevate your ETF investing IQ. Hey, y'all. It's Kelly Clarkson with Wayfair. Ever order furniture online and wonder, what if? Like, what if it doesn't hold up? That sofa was four days old.

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ColdFusion - How a 28 Year Old Man Destroyed England’s Oldest Bank

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