Barings Bank

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The expanding global market has created both staggering wealth for some and the promise of it for others. Business is more competitive than ever before, and every business, financial or product-based, regardless of size or international presence is obligated to operate as efficiently as possible. A major factor in that efficient operation is to take advantage of every opportunity to maximize profits. Many multinational organizations have used derivatives for years in financial risk management activities. These same actions that can protect multinational organizations against interest rate futures and currency fluctuations can be used to create profits for those same organizations.

At the time of its collapse, Baring Brothers & Co., Ltd was the longest established merchant banking business in the City of London. Since the foundation of the business as a partnership in 1762 it had been privately controlled and had remained independent. In 1890 Barings Brothers was founded. In November 1985, Barings plc acquired the share capital of Barings Brothers and became the parent company of the Barings Group. In addition to Barings Brothers, the other two principal operating companies of Barings plc were Barings Asset Management Limited (BAM), which provided a wide range of fund and asset management services, and Baring Securities Limited (BSL), itself a subsidiary of Barings Brothers, which generally operated through subsidiaries as a broker dealer in the Asia Pacific region, Japan, Latin America, London and New York. Barings Brothers acquired Barings Securities Limited from Henderson Crosthwaite in 1984. BSL was incorporated in the Cayman Islands, although its head office, management and accounting records were all based in London. BSL had a large number of overseas operating subsidiaries including two, Baring Futures (Singapore) (BFS) and Baring Securities (Japan) Limited (BSJ).

At the time of its collapse, Barings Bank had a reported capital of $615 million. This was in sharp contrast to its trading obligations, thanks to Nicholas Leeson. Nicholas Leeson was responsible for trading in the global financial markets to maximize his employer's bottom-line results. In February 1995, a financial reporter was curious enough about his financial trading activities to question him "about rumors that the Englishman was making huge purchases on the Japanese and Singapore exchanges on behalf of his London-based investment bank. Nicholas Leeson coolly explained that he was 'buying Nikkei futures here and selling them there'” . On February 27, 1995, Barings had outstanding theoretical futures positions of $27 billion on Japanese equities and interest rates, $7 billion of the Nikkei 225 equity contract, and $20 billion on the Japanese Government Bond and Euroyen contracts.

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