Cover-up sealed the fate of Barings

Singapore authorities' report: Key executives of collapsed bank accused of deception and Bank of England attacked for obstructing inquiry

Former top Barings executives were accused of deliberately covering up vital warning signs of Nick Leeson's ruinous speculation, in the Singapore authorities' report published yesterday.

Had they been acted on, the bank's collapse might have been averted, the report concluded. The long-awaited findings of the Singapore investigators into the collapse of Barings also slammed the Bank of England for failing in its responsibilities when Barings massively exceeded its capital exposure limits to several Asian exchanges.

A five-page appendix to the Singapore report details the increasingly strained relations between the British and Singapore authorities as their respective investigations progressed, accusing the Bank of England of obstruction and ordering the seizure of interview transcripts. While the report also states that Singapore International Monetary Exchange Limited (Simex) was negligent in taking at face value Barings' assurances, it is notable for the absence of any mention of the role of the island state's own central bank, the Monetary Authority of Singapore.

Nick Leeson, the 28-year-old former chief derivatives trader at Barings in Singapore, is in jail in Germany pending a final decision on his extradition to Singapore. The German authorities have granted this, but are considering an appeal from Mr Leeson's lawyers.

The Singapore report, covering much of the same ground as the Bank of England's own report published in July, accused Mr Leeson forging documents, altering accounts and providing incorrect reports in a three-year concealment of unauthorised trading losses. When Barings collapsed, these had reached nearly pounds 1bn.

The 183-page report, appointed by Singapore's Finance Ministry, differed from its Bank of England equivalent in its sharp tone and its belief in a conspiracy at the top of Barings in the crucial months before the collapse on 26 February.

After Mr Leeson himself, the main blame is placed on Peter Norris, the former chief executive of Barings, and James Bax, the top Barings man in Singapore. The Singapore investigators allege that they tried to cover up, and later played down, a serious accounting discrepancy uncovered by Coopers & Lybrand in January 1995, that should have alerted management to problems.

"Both Mr Norris and Mr Bax have denied being involved in any plan either to underplay the significance of the discrepancy or to discourage independent investigations into the matter. However, we are unable to accept their denials," the report said.

The investigators accused Mr Norris, who was unavailable for comment yesterday, of denying that he had a lengthy meeting with Mr Leeson in Singapore in February even though a number of witnesses confirmed it. Referring to the pounds 50m discrepancy uncovered by the auditors, the investigators said: "Mr Norris also took steps to conceal this matter from other Baring Group directors and to discourage Coopers & Lybrand Singapore and C&L London from including the matter in their audit management letters."

Mr Bax, also alerted at an early stage to this accounting discrepancy, "played an active role to conceal the significance of the matter raised by the external auditors and to discourage independent investigations into the matter," the report said.

"In our view, Mr Bax's evidence, though given under oath, was false in material respects, and this also gives rise to an adverse inference being drawn against him." The Singapore authorities allege that this crucial information was not properly distributed or emphasised at the senior committee in London which met daily to assess risk throughout the Barings group.

"In retrospect, it seems probable that until February 1995, the Baring Group could have averted collapse by timely action. By the end of January 1995, although substantial losses had been incurred, these were only one- quarter the eventual losses," the report stated. Primarily there should have been a thorough and prompt investigation of Mr Leeson's funding requests from June 1994, as S$1.7bn (pounds 760m) was remitted to cover his losses. Steps should also have been taken to sort out why the Singapore futures operation was having to meet such large margin calls.

In October 1994 the internal auditors had highlighted the risk of allowing Mr Leeson to override internal controls by virtue of his control over the back and front offices of the local operation, yet no action was taken.

Nor did Barings' asset and liability committee in London do anything to ensure compliance with its instructions to Mr Leeson to reduce his position in Japanese stock market futures, Japanese government bonds and Euro-yen futures.

The report was prepared by the independent government-appointed inspectors Michael Lim and Nicky Tan, partners at the accountants Price Waterhouse. The Ministry of Finance accompanied its publication with the announcement that Barings Futures (Singapore), already declared insolvent, was to be wound up.

The Singaporean authorities plan to discuss the implications for further legal action today. In a statement yesterday the Ministry of Finance said the Commercial Affairs Department, the body responsible for dealing with commercial crime, has been asked to follow up the report to see if there are grounds for prosecutions.

The inspectors conclude that "Mr Norris clearly had an interest in concealing the much larger losses that the Baring Group had incurred via account 88888 [Mr Leeson's secret account which was used to make trades on futures market]". The report says "a plausible motive can readily be conjectured" for Mr Norris's actions. It argues that he took over Baring Securities Ltd when his predecessor had presided over losses totaling pounds 11m and that he would not want a larger failure to be revealed.

Barings' management has always maintained that it knew nothing of Mr Leeson's account 88888 but the report says that knowledge of the account was "hardly crucial. If they did not know of it at the outset, they could have learnt of it once they undertook any steps to investigate the position.

"They could have remained ignorant of the account up to the time of the collapse only if they had persistently shut themselves from the truth, Mr Norris's explanation after the collapse, namely that the senior management of the Baring Group believed that Mr Leeson's trading activities posed little (or no) risk to the Baring Group, but yielded very good returns, is implausible and in our view , demonstrates a degree of ignorance of market reality that totally lacks credibility".

The report pointedly says that Mr Leeson managed to operate his account 88888 for three years without Barings' senior management knowing about it but they managed to unearth the account within hours of his disappearance.

The report alleged that Barings' management structure was inadequateat every level, allowing Mr Leeson a free hand to cripple the company. James Bax, managing director of BFS and managing director of Barings Asia Pacific (BAF), and Simon Jones, director of BFS and chief operating officer of BAF "had a limited view of their responsibilities as directors of BFS". Mr Bax and Mr Jones remain in Singapore under travel restrictions.

Mr Bax and Mr Jones are accused of doing nothing to end Mr Leeson's control of the front and back offices. Coordination between his bosses was said to be shambolic. The report says "lines of accountability [were] porous and ill-defined".

The report accuses the Bank of England of ignoring its own controls on the exposure to debt deemed acceptable for banks. It says that even the inaccurate information supplied by Barings to the Bank in the quarter ending 31 December 1994 showed that Barings had breached the limit on maximum exposure to margins, relative to the capital funds available.

Peter Norris,

Barings chief executive 'Both Mr Norris and Mr Bax denied being involved in any plan either to underplay the significance of the [accounting] discrepancy or to discourage independent investigations. However, we are unable to accept their denials'

James Bax,

Regional manager, South-east Asia and Nick Leeson's boss in Singapore

'In our view, Mr Bax's evidence, though given under oath, was false in material respects and this also gives rise to an adverse inference being drawn against him'

Nick Leeson Barings' senior derivatives, trader, Singapore ''[He] dominated staff ... and they did his bidding. The floor brokers who executed the large transfer trades between account 88888 and Barings Securities [Japan] and Barings Securities Ltd accounts said they merely did as instructed by Mr Leeson'

On the trail of account

88888

8 March 1992 Nick Leeson goes to Barings Singapore as settlement officer.

8 Spring 1994 Leeson begins trading on behalf of bank.

8 August 1994 Barings internal review highlights dangers of Leeson both trading and controlling accounting in Singapore office.

8 11 January 1995 Singapore Exchange alerts Barings Singapore to problems with Leeson's secret account.

8 17 January Kobe earthquake.

8 23 January Nikkei falls 1,000 points. Leeson goes double or quits, heavily buying futures for secret account 88888. Total nominal exposure $27bn.

8 27 January Coopers & Lybrand auditors query $75m missing Leeson transaction.

8 4 February Tony Hawes, Barings group treasurer, goes to Singapore to investigate Coopers & Lybrand and Simex concerns.

8 23 February Leeson flees Singapore. Barings Singapore executives begin emergency investigation.

8 24 February Peter Baring informs Bank of England that Barings faces ruin.

8 25-26 February Crisis meetings at Bank of England to arrange lifeboat.

8 10.10pm, 26 February Failing to cap derivatives exposure, Barings goes into administration, with losses totalling pounds 860m. Barings' capital base was pounds 560m.

8 27 February Barings losses rise to over pounds 1bn as Nikkei slumps. International manhunt for Nick Leeson.

8 2 March Leeson arrested by Frankfurt airport police as he tries to fly from Brunei to London.

8 5 March ING, the Dutch bank-insurance group, buys Barings for pounds 1.

8 April Singapore files extradition charges against Leeson in Germany.

8 1 May ING purges 21 senior executives connected with Barings collapse.

8 18 July Bank of England report on Barings collapse published.

8 1-7 September Serious Fraud Office interviews Leeson in Frankfurt jail.

8 27 September Baring bondholders granted private prosecution against Leeson.

8 4 October Germany grants Singapore extradition of Leeson. His lawyers appeal.

8 12 October Bondholders' prosecution taken over and dropped by SFO.

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