Asian tail wagged the City dog

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The Independent Online
They have started. The first of what will doubtless become a stream of books about the collapse of Barings hit the bookstores yesterday: the real-life thriller of a tale so bizarre that had it been written as a novel it would have been dismissed as absurd. Surely only in fiction does a dealer aged 28 manage to lose pounds 827m and break a 200-year-old bank.

But it did happen and the test of any account of these extraordinary events is surely whether it can answer the question "why?". Instant books have a bad reputation and with good reason. The problem is not just that they are frequently a sloppy job: you need some passage of time before events can fall into coherent focus.

Judith Rawnsley is a British financial journalist who by happy coincidence used to work for Barings in Tokyo. Because she worked with these people her Going for Broke - Nick Leeson and the collapse of Barings Bank (HarperCollins, pounds 14.99) takes a good shot at the "why".

She is able to bring a torch into two of the dark corners of the tale where the explanation ultimately will be revealed: the mind of the individual gambler and the managerial dynamics that allowed that gambler to blow everybody else's chips. It is not an instant book, heavy on the cliches of money and power; rather a briskly written but brave stab at explaining the incomprehensible.

The story of Nick Leeson's rise from junior clerk in Barings in London to head of trading in its Singapore office is well-enough known to require little elaboration. The book is useful in clarifying some odd little details, for example, the full story of why he did not get a dealing seat in London. The regulatory body, the Securities and Futures Authority, checked on his application statement that he had not had any county court judgments against him and found that he had. There was an outstanding judgment for pounds 2,426 on behalf of NatWest. This has been cited in the press as a reason why he was refused a licence to trade in London. That actually is not technically correct in two respects. First, as Christopher Sharples, the chairman of the SFA, explains in the book, a county court judgment would not necessarily disqualify a trader. He or she would, however, probably be subject to a probationary period and would be under special supervision by the employer.

Second, Mr Leeson was not refused a licence. When the county court judgment was reported back to Barings the application was quietly withdrawn and he moved to Singapore.

This may seem a detail, but it is an important one. Had Mr Leeson's application been pursued in London he would have been taught that not paying debts is liable to be a black mark in career terms. And the bank would have been taught that it had to give special supervision to this dealer. Had those two lessons been heeded, the whole catastrophe, for both the individual and the firm, would have been avoided.

Where the book really breaks new ground is in bringing together the tale of Mr Leeson and that of the rejuvenation of Barings following the development of its Far East business, Baring Securities, by Christopher Heath. Most people within the City are aware of the extraordinary business that Mr Heath created, and periodically he hit the headlines as one of the highest- paid Britons. But no one has yet caught the feel for what it was like to work in that booming business, or to explain how the successful tail in Asia came to wag the sleepy dog back in London.

When Mr Leeson seemed to be such a successful trader (remember that he was showing his profits to the bank and dumping his losses in a secret account) it was easy to play on the split personality of the bank, for the Baring Securities operation had not been fully integrated into the Baring Brothers business. Christopher Heath had left in 1993, largely as a result of these tensions, but the split structure remained. Because lines of responsibility were confused, Nick Leeson was able to escape proper supervision.

And the man himself? For obvious reasons, Ms Rawnsley did not have access to him during the writing of the book, but had met him when he visited the Tokyo office where she was working. Her feelings are the same as that of everyone else: that he was unremarkable, typical of the large number of young people who had come into financial service companies' dealing rooms in the 1980s.

Unlike most of them, however, he was not properly supervised. There are plenty of people like him who make bad errors in their twenties, are sat upon by their seniors, and mature into useful employees. Sadly for him, but more sadly for many other Barings' employees, and for the people who bought the bonds, nobody sat on him hard enough when there was still time.

So there is here a sort-of explanation of it all. Is there something more, something that will enable western countries to run the financial system better? Enemies of the western market system and of the City have naturally used this story to attack the things they hate. You hear those snide comments almost every day. Even the fact the authorities here are not seeking to extradite him is somehow being turned to reflect badly on the City.

But even the most enthusiastic supporter of the derivatives industry would be pushed to defend any of the players in this tale. It would be grand, therefore, to be able to say in response that there are clear lessons for the future: a blueprint that will prevent this sort of thing happening again.

There is no answer here and it would be naive to expect it. There will be crashes in the future just as there have been in the past. For the market system, like the human beings who run it, is deeply flawed. Trouble is, every other system is worse. (Graphic omitted)