SFO launches inquiry amid witch-hunt

The Barings collapse

The Serious Fraud Office launched an investigation yesterday into the Barings collapse, as recriminations reverberated at the bank's head office among senior executives over who bears the main responsibility for the disaster.

The SFO, headed by George Staple, was requested by the Bank of England to look at allegations of frauds in Barings' Singapore office by the senior trader there, Nick Leeson. He was yesterday in detention in Frankfurt.

The Bank of England passed documents provided by Barings purportedly showing Mr Leeson falsified client accounts and hid substantial losses. The Bank said it had asked Ian Watt, a top accountant and head of the Bank's Special Investigations Unit, to establish the events leading up the collapse as part of its own inquiry.

Mr Watt will be assisted by a team from accountants Arthur Andersen, lawyers from Norton Rose and a derivatives specialist from JP Morgan.

Inside Barings, attempts by directors to conclude the sale of the business, which went into administration last weekend, were being hampered by a furious witch-hunt for the men thought to be mainly responsible for supervision of Mr Leeson.

Attention was focusing on Peter Norris, the head of Barings Securities, and Ronald Baker, head of the Financial Products Group, which specialises in derivatives trading.

It is partly rivalry between these two individuals, and more generally between the two very different sides of Barings - the conservative merchant banking operation and the more aggressive securities trading arm - that is believed to have impeded the implementation of recommendations that controls on Mr Leeson be tightened.

Executives said yesterday Mr Norris had formally accepted full responsibility for the bank's failure to spot Mr Leeson's problems. But within Barings, an internal investigation is placing pressure on Mr Baker, who was brought in in the summer of 1992 to strengthen derivatives trading. An Australian, who left Bankers Trust in less than happy circumstances, Mr Baker was directly responsible for Nick Leeson.

An internal audit conducted in the summer of 1994 of Barings South-East Asia operations highlighted a "significant general risk" in the Singapore office, where Mr Leeson was allowed to trade and to settle the accounts on these deals, because of the small number of staff.

Mr Leeson was shown a copy of the recommendations, but reported back to Mr Baker that he could handle the situation. The tightening up was never implemented, partly because of rivalry over who was managing what was regarded in the group as a highly profitable operation. While formally part of Barings Securities, Mr Leeson's Singapore activities were run by the Financial Products Group under Mr Baker.

Some executives were yesterday openly accusing colleagues of being blinded to the risks inherent in Mr Leeson's free rein by the prospect of fat bonuses .

"Ronald Baker has to take the blame; he was directly responsible for Leeson and should have paid a lot more attention to the business," said one.

As Mr Leeson's derivative speculation grew substantially from late January onwards, Barings in London was sending through increasing sums of money to finance part of the margin calls on the Singapore exchange. The transfers were signed by Tony Hawes, group treasurer, who checked each trade with Mr Leeson and Mr Baker. According to executives, Mr Hawes was encouraged by Mr Baker to give the go-ahead.

"If Baker says, this guy Leeson is making very good money for all of us, so just mind your own business and sign the cheques, then Hawes signed," said an executive.

Despite the very large size of Mr Leeson's positions on the Singapore and Osaka exchanges, senior management in London showed little sign of concern until February, because it believed Barings position to be fully hedged.

What Peter Baring told shareholders last year:

"We will also be careful that the scope of the opportunities open to us does not overstretch our management resources or unbalance our chosen ways of doing business...

It is imperative for us to remunerate competitively if we are to attract and retain good people...

It would be naive to supose that greater disclosure of balance sheet data will necessarily give users of accounts a better understanding of the Group; indeed the extra data will, in many cases, serve only to divert attention from the fundamentals of the business, much of which is conducted without using significant balance sheet space."