Baring Bank Case Essay

The Fall of sanngs sank The storey of Barings Bank shows how overconfidence, coupled with poor inborn control, can until now chip in down an historic financial institution. Below we provide a few teaching points. Nick Leeson seemed to have all the char modus operandieristics of an positive trader. As exposit in the chapter, excessive trading, lack of diversification, and likewise much risk were manifestly present. Self-attribution bias seemed to play a major role. One commentator notes that Leeson got overconfident after initial trades were successful and when he started to lose money, got way too aggressive trying to make it up. When Leeson was asked about his actions, he explained that l was pertinacious to win back the losses I was well down, but more and more sure that my doubling up and doubling up would pay attain , thereby overestimating his abilities by thinking he could outperform the market even after severe losses. A case study into the affair conclude that i t was overconfidence that led Nick Leeson to bet his reputation. But, as Saul Hansell of The mod York Times stated, It isnt Just rogue traders loose annons stretching internal rules on trading desks who have destroyed their investors wealth.Money managers who play by the rules can get caught up short, too, when they fall to overconfidence about their ascendance of the markets. He further wrote that, It is no secret that traders, as a class, ar a young, independent and cocky bunch. The sheer size of the money they ar Juggling can lead toa master-of-the- universe attitude. The Fall of Barings sank Barings Bank was founded in 1762 as the John and Francis Baring Company by Sir Francis Baring.This bank was the oldest merchandiser bank in London, financed the Napoleonic Wars, and was the Queen of Englands own bank. In 1996, one man, Nick Leeson, managed to bring down Barings Bank, one of the oldest and most standpat(prenominal) financial institutions in the world, through his illic it trading activity. In 1989, Leeson fall in Barings Bank. After being transferred to Jakarta, Indonesia to sort through a back-office mess involving EIOO one thousand gazillion of share certificates, Leeson solidified his reputation within Barings when he successfully rectify the situation in 0 months.Lesson also k newfangled how to account for derivatives, even if he did not fully understand the complexities of their pricing. Therefore, in 1992, when Barings opened a new office in capital of capital of Singapore to trade on the expanding Singapore mercenary Exchange (SIMEX), Leeson became an obvious candidate to manage it. Senior management at Barings Bank assumed that Leeson would turn the Singapore office into a exceedingly profitable endeavor and therefore gave him extensive responsibility. As eliminated the necessary checks and balances unremarkably found within trading rganizations.Soon he was Barings Banks star Singapore trader, bringing in substantial profits from trad ing on the Singapore exchange. By 1993, Leeson had made more than Elo million, about 10% of Baringss perfect profit for that year. In 1994, he delivered over half of the E52. 9 million in revenue for his division on his own, making many proclaim him as the miracle worker. In his autobiography Rogue Trader, Leeson said the culture at Barings was simple We were all driven to make profits, profits, and more profits I was the rising star. Aided by his lack of upervision, the 28-year-old Nick Lesson promptly started unlicensed speculation in futures on the Nikkei 225 stock index and Japanese disposal bonds. SIMEX regulators were aware of Leesons cross-trading activities, and his breach of their exchange regulations, but did not act decisively to stop him. Leesons large trading volumes were quickly comely important for the exchange, and being a lightly regulated market was key to SIMEXs strategy to woo trade from neighboring Osaka. Using futures contracts, Leeson speculated that th e Nikkei would rise.