He has made clear his intention to publish the findings quickly. This means doing so by 20 July, Parliament's last working day before the summer recess. The report must be presented while Parliament is sitting because only in this way will the authors be covered by privilege, and so be protected against legal action by any individuals criticised in it.
The Singapore authorities are also near to completing their own investigation, but it is not clear whether they intend to make the findings public. Harsh criticism is reserved by the Bank of England's independent investigators for a number of former senior Barings' executives. They are slated for operating an inadequate risk control system and apparently failing to heed at least two clear warning signs of grave irregularities in the vital period early this year when Nick Leeson's clandestine derivatives speculation began to spiral out of control.
According to evidence presented to investigators, Barings was technically already bankrupt by the end of 1994, with paper losses alone on options written by Mr Leeson swelling to more than $400m (pounds 250m). But the derivatives speculation accelerated dramatically in the first six weeks of 1995. Hindsight now shows that if proper attention had been paid to the warning signals, even though the sums involved were mere fractions of the real losses being run up, Barings management may have been able to take steps to arrest the rapidly unfolding catastrophe. The Singapore authorities are believed to go even further in their criticism, suggesting that senior management failed to act, despite clear warning signs.
Although evidence received from a number of former and current Barings executives was highly critical of the Bank of England's ability to supervise a business engaged in derivatives trading, it is not thought that the report by the Board of Banking Supervision will be unduly harsh on Barings' main regulator. Executives told the investigators that the Bank was unsuited to overseeing firms dealing globally in the full range of equity products, and that it responded slowly and inadequately to requests for regulatory guidance on derivatives.
The Singapore report is also believed, mainly for political reasons, to back away from very harsh criticism of regulatory shortcomings by the Bank of England. There does appear, however, to be a clear attempt by the Singapore authorities to shift the blame for any supervisory shortcomings within their own exchange, on which Mr Leeson dealt, on to Barings in- ternal management.
Evidence provided to investigators shows there were two separate warning signs given in January, the first coming some seven weeks before Barings collapsed. On 5 January, the Singapore exchange, Simex, queried Barings officials about a $100m shortfall in margin positions posted in account 88888, run by Mr Leeson. This was the secret, fictitious client account that Mr Leeson allegedly used to conduct his ruinous speculation. Failing to get an adequate response, because Mr Leeson was away in London, Soo Yu Chuan, senior vice-president for audit and compliance at Simex, wrote to Simon Jones, chief operating officer in Asia for Barings securities, demanding an explanation of the status of account 88888 and the margin shortfall. He also criticised the fact that no one at Barings futures operation appeared to know anything about the account in Mr Leeson's absence. "We would be concerned. Please look into the matter," he wrote.
He also suggested the customer account was being financed by Barings itself, which would have broken Simex rules. One of the key criticisms in the Bank of England report is that Barings' controls failed to distinguish properly between customer and house derivatives acounts. This apparently enabled Mr Leeson to dissimulate his speculation and call on money from London to finance it. The Barings director in charge of customer derivatives trading in Asia, Michael Killian, was not even based in the region but worked from his home in Portland, Oregon. Mr Killian still works in this position for Barings under its new Dutch owners ING.
The second warning came in the second or third week of January, from the auditors, Coopers & Lybrand. The firm uncovered a $75m discrepancy at Barings Futures Singapore that could not be adequately explained by trading losses. The Singapore authorities have claimed as part of their request to extradite Mr Leeson from Germany that the documentation to explain this $75m trade involving the US investment house Spears, Leeds and Kellogg was forged. The auditors' concerns were transmitted to Barings' senior management, including Geoffrey Broadhurst, group finance director, James Bax, in charge of operations in Singapore, and Peter Norris, chief executive of the investment bank.
At the meeting of Barings' central risk committee on 8 February, the problem raised by Coopers was dismissed as an "operational error". On 13 February, at a meeting of Barings' management committee, Ian Hopkins, group head of risk control, also explained the problem as "operational error". Less than two weeks later, Barings collapsed under losses two- and-a-half times the bank's capital.