Stay up to date with notifications from The Independent

Notifications can be managed in browser preferences.

`It's often said that after a while you cease to be frightened of money, but it is equally true that you lose all respect for it' The talk on the trading floors is that Barings was an accident waiting to happen. By Jim White

Jim White
Tuesday 28 February 1995 00:02 GMT
Comments

At 3.30 yesterday afternoon, the workers in one City of London trading room, in between frantically trying to recover their positions in the Barings collapse, had organised a little diversion. A book had been opened on how long it would take for Nick Leeson, the missing instigator of the collapse, to be found. One trader, laying down £5 an hour, bet it would take two weeks. Bit long, his colleagues said, the Singapore authorities were after him, not to mention the Sun. Yeah, true, the trader reasoned, but it might take some time. After all, he was rumoured to be wandering around the Malaysian jungle having lost his Barings.

This is how most trading rooms in the City react the moment a piece of important, market-threatening news comes through: they open a book and they make up a joke. All day yesterday, the telecommunications wires were frantic with speculation, rumour and gags being workshopped up into a form respectable enough to sell on to a newspaper diary in exchange for a £20 tip-off fee. These are some of them: that Leeson was a sophisticated fraudster establishing a monster Austrian hedge fund; that he was a scapegoat for institutional conspiracy; that he had found been on a beach in Phuket; that he had been found floating face down in the South China Sea, wearing Robert Maxwell's trousers. Oh, and what's the difference between West Ham and Barings? Nothing: they're both going down this year.

But one thing all traders agreed on. This was not just another big story. It was one that touched their own lives rather more profoundly than was generally the case with an interest rate hike, the fall of a foreign government or any other news story which usually affects the market.

"It is difficult to think of a single action by an individual which at a stroke has cost thousands of people their jobs and brought down an institution which had been trading profitably for a couple of hundred years," said one trader. "Except, perhaps, Mrs Thatcher putting herself forward for election. Whoops, bit political there, folks."

What Leeson did was reveal the fragility of the business in which he and all traders operate. Barings was not a business in trouble. Last year, it registered a profit of £120m. There was no hint of problems last week in the City, where the bank remained the by-word for stability. Indeed, last Friday a group of derivatives traders held their leaving party at Bankers Trust before moving to new jobs at Barings. Their "golden hello" signing-on fee was a load of preference shares in their new organisation.

A typical stroke of luck, that. The City trader's life is not a secure one. The system encourages big risk-taking, it needs to in order to make the big returns required to fuel the whole expensive operation. And big risk-taking needs big risk-takers.

Like other adrenalin-charged professions - acting, for instance - the traders talk up what they do, investing their line of work with a kind of exclusive mystique that precludes outsiders, behaving as if they are face workers at the money pit, where only the macho survive.

"Every day you are walking across a tight-rope across Niagara," said one trader ("never give your name, never make a promise"). "You have no control over the wind, and at any moment it can change. When it does, you're fucked."

They scatter their conversation with words like "synthetic future". What, you might want to know, is the "derivative" that Nick Leeson lost a bundle on? According to Richard Solway, of KPMG in New York, it is a "generic name covering purchase of stock, share or currency at a future date. They fall into two broad types: forward-based and option-based." In other words, you promise to buy something in the hope that it will be worth more when you come to pay for than it was when you made the promise. Despite the complex computer models that have entered the picture recently, trying to predict the utterly unpredictable, financial trading is basically a simple game. It is a bet.

"There is a great mystique about the trader's work," said Derek Ibsen, of the Japanese finance house Daiwa. "But really, it's this. A very good speculator gets the market right about 60 per cent of the time, no more. He aims to make three times the profits on those successes than the losses he will accrue 40 per cent of the time. The trader who survives is the one who respects the market. You must never allow your ego to make you think you can beat the market. The market is always right."

Read the market correctly and the bonuses are "monster": £1m is now commonplace. Get it wrong, and the sack beckons.

"If you come in one day and there's a black bin bag on the desk, you have to be mentally prepared for it," said Ibsen. "That's why we get paid three times the rate for an equivalent profession. It's not for the job security." And you have to be tough and shrewd to survive over 30.

"It's not impossible to survive," said one trader. "But you have to learn to cope with the pressure. Personally, I would find the pressure of being on the dole infinitely worse, but maybe that's why I'm still at it at 40."

And, in the meantime, enjoy. "Eat, drink and be merry, for tomorrow we pick up our P45s" is the guiding philosophy. Mostly, traders' enjoyment centres on money. It was, after all, in the trading rooms that the game Wedge was invented. It runs like this: on the shout of the word "Wedge" in a City bar, everyone has to slam their wallets on the table-top. Whoever has the least money buys everyone in the bar a drink. In order to avoid the ignominy of defeat, traders would refuse to go out drinking unless they were wedged up to the tune of at least a grand. In a decent trading room, if the markets are quiet, idle time will be filled making mini-markets, on which the boys (and girls) pile up huge Ps and Ls (profits and losses) on their own PAs (personal accounts). Bets will be laid on anything: how many Cadbury's Creme Eggs will be on the refreshment trolley next time it comes round, or which lift will be first to arrive.

It is no surprise, then, that the trading business has traditionally attracted the race course mix of hoorays and barrow boys, both of whom share the reckless love of a gamble. They are the opposite of the middle class professionals who know at any one moment precisely how much they have in their current account. In a dealing room, the size of your overdraft ("massive", obviously) is matched only by the size of the hangover you are nurturing ("mammoth", usually) as a sign of your machismo.

Nick Leeson left substantial debts, more than £3,000 was set against him in county court judgments when he left the country two years ago. The bank manager in Pinner, or the chartered accountant in Bury St Edmunds might wonder how he could have built up such debt when he was earning £200,000 a year. But why worry about a couple of grand owed on poll tax if you are betting £500m of someone else's money every day. As one trader said: "It is often said that after a while you cease to be frightened of money, but it is equally true that you lose all respect for it."

The thing about the life before Leeson was, however, was that there was always some organisation, some regulatory system, some grown up who contained the recklessness. The collapse of Barings shows that the lunatics can take over the asylum.

"When the system has been exposed so ruthlessly," said one trader yesterday, "you sense that the financial doomsday clock has notched another minute or two towards midnight."

Join our commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies

Comments

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in