What began as the story of a man quickly became the indictment of an institution, or maybe even a system. Report by Jeremy Warner and Steve Boggan
Even for a man used to playing with millions of dollars a day, the noughts in Nick Leeson's secret account had become too terrifying to contemplate. He was losing billions of yen; hundreds of millions of pounds.

Leeson had been planning his departure from Singapore for at least a month but events had now overtaken him. Confronted by his immediate superior with demands for full details of his activities, Leeson said that his wife had had a miscarriage and he would need to visit her in hospital but would be back within the hour. Colleagues never saw him again. What they discovered was error account 88888. This was the secret computer account that Nick Leeson used for his ruinous trading in high-risk derivatives. By the time the account came to light it showed losses so substantial that it sank the City's oldest merchant bank, Barings, sending shock waves through the world's financial markets.

Whoever named the account, Leeson or his presumed accomplice, must have had a sense of humour. To the Chinese, eight is the ultimate lucky number.

A more bizarre, extraordinary or sensational story than that of the boy from the Watford council house who bankrupted the Queen's bank, ending a 233-year tradition, is hard to imagine. We are far from knowing how it is going to end. For what was sold at the beginning of the week as the tale of a one-man demolition derby has changed from day to day, revealing arrogance, corporate greed, management failure and supervisory incompetence on a grand scale. Leeson may have been a gambler, a rogue and a fool, but ultimately he was at the bottom of a long chain of command and responsibility which ends with Eddie George, Governor of the Bank of England. Dbcles such as this are not meant to happen; the system is meant to have sufficient checks, balances and controls to prevent it.

As the week began the picture being presented by Barings was that it had become the unwitting victim of a rogue trader in the Far East, one moreover who had created an elaborate facade to disguise what he was doing from the prying eyes of his superiors. It could have happened to anyone was the broad thrust of the defence. In the search for explanations, excuses and scapegoats, Peter Baring, the chairman, went further to say that the bank may have become the victim of a criminal conspiracy to sabotage it. The first he knew of any problem was last Friday when the head of Barings Securities had come to him to explain that significant "accounting discrepancies" had been discovered in the group's Far Eastern operation. As the week progressed it was an explanation that became steadily less credible. Mr Baring may have had little or no idea of what was going on in the bank he was responsible for, but there were plenty in London who must at least have had an inkling. Most competitors express amazement that a bank the size of Barings, with comparatively limited capital and reserves, could have exposed itself to the risks of large-scale proprietary trading in high-risk derivatives. That it did so on the recommended strategy of a 28-year-old, with no adequate system of control or monitoring to assess his risk, is doubly astonishing.

All the ingredients for the lethal cocktail that threatens to kill Barings were in place by the start of this year. There was "loadsamoney" Essex man on the rampage in the Far East, apparently answerable to no one. There were his London superiors, mesmerised by the apparent profits he was making, prepared to give him as long a leash and as much capital as he required. And there was a sleepy old English merchant bank, living more on its history and aristocratic name than its abilities, but wishing to move with the times and, in a half-hearted, bumbling way, determined to move into the high-risk business of derivative trading.

Alongside Leeson's Barings business, a separate, more sinister type of business was building from the middle of last year. Using fictitious client names and a hidden computer account (error account 88888), which failed to show on monitoring reports to London and outside auditors, Leeson was conducting substantial extra business. By the beginning of this year the account had notched up losses of more than £50m. As Leeson's losses mounted, he compounded the position by purchasing more contracts through the hidden account. Margin calls on the transactions were met by selling options in the over-the-counter market, chalking up yet further losses.

As the recriminations fly, there are more questions than answers. How could Barings have even employed a man who held two false passports and in moments of drunkenness dropped his trousers in public, let alone have given him the head he needed to bet the bank on Far Eastern futures markets? Who, if anyone, controlled him? As the institution responsible for banking regulation, was the Bank of England in any way culpable? Did it receive warnings, or should its supervisory procedures have picked up the signs? Moreover, if lax control was pursued deliberately as a way of attracting foreign banks and securities houses to the City, is it about to backfire badly?

The gulf between Nick Leeson and the bank that employed him could hardly have been wider. Leeson: the soccer-playing boy who grew up in a council house, the son of a plasterer, the would-be City trader who failed A-level maths. Barings: seat of aristocratic wealth, epitome of conservative values, an institution named by Cardinal Richelieu as the sixth great power of Europe after England, France, Austria, Prussia and Russia.

But this is in the nature of the City; the hungry, aggressive, streetwise qualities of working-class boys - often from the East End of London - have long been recognised by their stuffier masters. Leeson had a ridiculously free hand in Singapore because he was making monstrous profits for the bank. Any doubts superiors may have had were thrust to the backs of their minds, and by early last year the bank had become the regular and substantial provider for the Leeson exploits that were to bring it down.

Nick Leeson got his first big break in April 1992. For three years he had been working as a settlements clerk in the "back room" at Barings in London, laboriously processing the deals yelled back and forth in the frenzy of the futures market.

By all accounts, he had been excellent at his job, quickly grasping the ethereal complexities of the market. He had joined the firm from Morgan Stanley in 1989, having already built up a reputation for intelligence and efficiency.

Schoolfriends remember him as a good but plodding pupil, certainly not the stuff of which £200,000-a-year dealers are made. He was earning less than a quarter of that figure when the break came his way. He was transferred to Barings' Singapore office and within months was promoted to a dealer.

His impact on the office was staggering. In the year to September 1992, Baring Futures in Singapore made S$2.72m (£1.18m) from a turnover of S$3.83m. By the end of 1993, Leeson's first year, the company's net profits had risen eightfold to S$20.3m (£8.83m) from a turnover of S$27.9m.

"I used to admire him," one of his rivals said this week. "He made very risky decisions which, if wrong, could cost the company millions. But he usually turned out to be right and came up smelling of roses.

"And he didn't just get it right. He appeared to be cocksure that he was going to get it right."

Leeson's salary began doubling periodically, with rumours of bonuses running into millions of pounds. Leeson and his wife, Lisa, moved into a £4,000-a-month apartment, paid for by Barings, in a condominium in the exclusive Orchard Road area of the city.

He owned a Mercedes Benz and a Porsche and was also believed to have a yacht moored off the coast.

He is remembered as a heavy drinker, loud and crass when drunk. He was once fined S$200 for dropping his trousers in a night-club. When a group of women objected to his behaviour, he handed them his mobile phone and challenged them to call the police. Not surprisingly, they did.

By the time Leeson's entire edifice collapsed, he had open more than 60,000 contracts, worth £4.4bn, compared with the 6,000 average of Barings' four main rivals.

Tony Hawes, Barings' group treasurer, first brought the glaring hole to light in an emergency memo last week. He said that there had been a £50m deficit in account 88888 by the end of 1994, but the desperate trading multiplied out of control in January and February this year.

"It appears the trader started to use Baring Securities capital to trade on his own account during 1994, and initial indications point to an unrecognised loss of [£50m] being outstanding at the year end," said the memo. Mr Hawes also said the trades had been "camouflaged" and that account 88888 contained "substantial unauthorised and unreported positions."

This gives the impression that Leeson's unconventional trading was only just being noticed by senior management. But the evidence suggests otherwise.

Yesterday it emerged that senior executives were warned last August by internal auditors that Leeson, the general manager of the Singapore office, had been working in the settlements "back office", as well as dealing. This, the auditors warned, was potentially dangerous. There ought to have been a degree of independence between the two functions to ensure the paperwork corresponded with the deals.

But the warning was ignored, apparently allowing Leeson to cover his tracks in the back office. Further, Barings transferred hundreds of millions of pounds to Singapore to plug Leeson's growing black hole in the four weeks before the bank's collapse. Directors authorised £538m in borrowing, using £454m to make margin payments on Leeson's contracts. A former colleague of Leeson's said last week that Leeson's outrageous profitability had made him untouchable. "They began to suspect there was something wrong with his profits, but they wanted to believe they were real," he said.

"The brief was to check gently but not to upset him. He was considered too valuable, so they didn't look too closely. The problem is, they forgot that no one is indispensable."

Before his surrender and the attendant legal complexities that surround it, Leeson made several telephone calls to a friend in which he threatened to name those in Barings who knew what he was up to.

"I was the sacrificial lamb," he reportedly said. "People senior to me knew exactly the risks I was taking. Lots of people knew. But I was allowed to carry on. Why? Because if it had worked, the payday for everyone would have been fantastic. But it went wrong and now they're trying to lump all the blame on me."

It was with these words ringing in their ears that the directors of Barings would have heard of Leeson's surrender. It would not be too reckless to assume that waggish rogues everywhere would have wanted the dealer to give the police a better run for their money; but there may be those inside the bank who wish the young man from the back room had gone to ground for good.