Nick LeesonNick Leeson. Photo: NickLeeson.com

Pod Chats: Nick Leeson on Trading Infamy (Part 2)

Two Blokes Trading

Two Blokes Trading Episode 108: Breaking the Bank with Nick Leeson Part 2. Click above to listen to the full episode

Nick Leeson is the infamous rogue trader responsible for the Barings Bank collapse in 1995.

In Part 1 of his interview with the Two Blokes Trading podcast (read it here), Leeson opened up about his early experiences in trading, including his memories of pre-Internet trading and his time at the prestigious Coutts bank.

Here in Part 2, Leeson delves into the lead up to the events in Singapore that resulted in his trading infamy. Read it below or listen to the podcast in full here.

I picked up the Asian Wall Street Journal. And the headline was ‘British Bank Collapses’. You kind of think, ‘that’s great, someone’s in more trouble than me’…then you realise that it is you.Nick Leeson

On Singapore...

It was the opportunity to run the trading floor, the live trading floor on the Singapore International Monetary Exchange. I used to love Asia as well so it was a dream move for me at the time. I never really encountered anything that I couldn't cope with and I was being paid well and I was living in the part of the world which I really enjoyed. I was an expat in Singapore, so I was very well looked after. And the opportunities just kept coming, but I was young, I was 25 when I moved to Singapore to run the operation there. But nobody was going to tell me that it might have been a step too far because I was confident in my ability.

Singapore, I think is a police state, and the longer you stay there you realise that it becomes very front and centre in terms of what you are thinking. But when you live there, you revert to types, you do stupid things. There were many a time when a taxi driver would take me to the local police station because he couldn't wake me up because I was comatosed in the back of this car. And eventually I would find my way home, just as you would if you were back in Watford or Dublin or wherever you live, you eventually get home. So Singapore wasn't so bad in that regard, they didn't take you in and beat you before they took you home.

There's definitely a drinking culture, and there's no problem with alcohol, the thing is you have to behave yourself as well. One of the concepts, certainly in Singapore and wider Asian circles is protecting female modesty, so dropping your trousers and 'mooning' at people in a bar is not really [done]. I spent a night in a prison cell for doing it. It seemed like a good idea at the time, it clearly wasn't.

On the cocktail named after him...

I'm not allowed back in Singapore, so I've not come across it. I think it's called 'The Bank Breaker'. It's in a bar called Harry's which is in Boat Quay which is close to where the Singapore International Monetary Exchange used to be. It used to be a bit of an expat hangout. The frequency of how much I was supposed to be in there is massively overstated, for me when things were going wrong, the last thing I wanted to do when I finished the trading day was to go and sit with a load of expats and talk at how great the day was, because I knew that it hadn't been. So Boat Quay runs along the river that comes in from the ocean and I would go to the other end of it which was more where the locals used to go, so the Chinese and Malaysian traders.

https://staging2.traderlife.co.uk/features/trading/5-famous-trader-haunts-from-around-the-world/

On things going south...

Things did start to go wrong fairly quick. We had some errors on the trading floor, the environment at that time at Barings was a lot of people were getting sacked for making mistakes. It was a very junior colleague who made the mistake, I decided to keep it in an account overnight, which became known as the as the five 8's account, and that's where the losses started and then started to mount. Then over the course of a two-and-a-half year period the amount of trading in there escalated quite aggressively. There were times when we got all of the losses back, there were times where the losses really got out of control and by the end of February 1995, it ultimately caused the collapse of a 133-year-old merchant bank.

You were living minute-by-minute, it was a constantly evolving situation, when you look back at it chronologically, year one I would have got a slap on the wrist and told not to do it again. Year two I'm going to lose my job and somewhere between the end of year two and February 1995 it gets to the extent that it’s probably thrust into a criminal sort of area. Now it's criminal from the very beginning and don't take anything from away from the crime in that statement but banks weren't going to be very vociferous about rogue trading situations at that time as it highlights that there is something isn't quite right within the organisation.

On the psychological toll...

When I first arrived in Singapore I wasn’t carrying as much ‘timber’. I was playing football in Singapore, I would be boxing a lot, bit of gym work, playing a lot of squash. And that all went by the way-side in a year, as the stress levels escalated. You turn to other forms of coping. That tends to be alcohol and you use alcohol to blot out and survive some of the situations that you find yourself in. So alcohol is one way in postponing the realisation of something that you really don’t want to face. For me I was postponing the realisation of the losses from an organisation perspective, I was postponing the realisation of my own failure, from a personal perspective.

Then alcohol was one way of postponing that even further, because rather than confronting and dealing with situations, it was easier just to let the days blur together. I was the one person who didn’t attend the conference (‘an awards ceremony’), the conference was basically to celebrate the success we were having in Singapore, because the Singaporean entity was responsible to 90% of the groups profit. And yet I was downstairs getting fucked up on whatever I could find.

On when it all came crashing down...

I was back home in England for Christmas of 94’. I spent a bit of time in Middleton, and then I went back to Singapore early 1995 and was there through to the 3rd February 1995, which was the day eventually somebody came up to me with a very simple reconciliation where they were adding two numbers together and getting the right answer. Taking three years to get to the point…which found the discrepancy, the illegal five 8’s account, it was huge. The loss that the bank suffered was £862 million. And that was enough to cause the collapse of the bank.

The first thing on your mind is self-preservation, I’m in Singapore, it’s a tough regime from a police perspective. In the last six months I’ve spent the night in one of their police cells, so I know what it’s like. So, you don’t really want to go back. So, it becomes fight or flight, and flight was the best approach, I was married at the time and didn’t want my wife to be arrested in Singapore, so decided we needed to get out of the country sharpish. So, we went to the airport, got on the next flight out, which was to Kuala Lumpur, and then the very next day, travelled from Kuala Lumpur and got as far as Malayan half of Borneo. Then the story really started to unfold. You’re on every TV screen and every newspaper, Interpol are looking for you and you kind of realise you’re in the shit a little.

I knew the situation was bad, I just didn’t quite know how calamitous my actions were. I didn’t know that the capital base of the bank was so small. And I was expecting there to be some losses and I could have roughly quantified those, but I didn’t realise it was twice the capital base of the bank. I really run out of control in the last three months in 1995. Obviously not aided and abetted by the bank, but the bank had been complicit in sending the money out to me, so I had nearly £600 million with me by the time I left Singapore.

Genuinely, on the 25th February I went down to the local news agents and picked up the Asian Wall Street Journal, which was the newspaper of choice at the time. And the headline was, ‘British Bank Collapses’. You kind of think, ‘that’s great, someone’s in more trouble than me’…then you realise that it is you. Again, your self-preservation kicks up a level trying to work out how you’re going to get home.

On his thoughts in retrospect...

There’s never ever any blame (on anybody else), the blame is fully centred on me. I don’t have any problem with that. The fact that people…who had control, should have been tighter, is not an excuse and it’s also not an avenue of pushing any blame, it’s just a statement of the facts. If I look back on that period, I would have wanted to be successful, success if the most important thing to me, so that period will always be the most embarrassing period of my life. But you come to terms with it, and I came back from Singapore in 1999 and you have a choice. You can disappear and pretend it never happened, or you can face up to it and move forward. I’ve chosen to do the latter. I have done a lot of after dinner speaking, talking at conferences about my experiences.

On not wanting to give up trading...

Let me answer that in two ways. At the time you do (want to give it up), but the reason why I didn’t, admitting what was going on was admitting my failure. That was the hardest thing to do. That’s why I didn’t do it at the time. It’s impossible when you’ve been involved with financial markets, and it was my only real job. As much as I wish it wasn’t. When you’re involved in financial markets and have worked within them and have been a decision maker, it’s very difficult to avoid them. And no two days are the same, I don’t think any industry has the same sort of variety in it as the financial markets. There is always something new to learn, always something new to adapt to, lots of things to keep you interested and involved. It’s impossible to completely shut off.

In terms of why I’ve now stepped back into it, from a more head-on perspective, is I think one of the things that is regularly apparent to me over the last number of years, there are people who have been lured into the trading the financial markets based on some very false and misleading advertising. People pictured next to a Ferrari that they’ve hired for the day and then luring people in to start trading with their hard-earned money, and unfortunately people can lose it all, in a very short period of time.

Just things about A & B books at the brokers, brokers taking the opposite side of the trade, just illuminating some of the difficulties that face the average retail trader is an important thing. Just to put an end to those myths, it’s not easy to trade the financial markets, you need education, you need experience, but if you’ve got both of those, then it is possible to trade the markets consistently well.

Want to listen to Nick Leeson's full interview with Two Blokes Trading? Listen here to Episode 108