I can be a controversial choice of speaker and some of you may have had reservations about attending this evening. I do believe that I have a story to tell and that many of you will agree that it is a fascinating story, if not one that you would like to repeat at your own firm.

The story in its simplest form combines high levels of risk with complete mismanagement.

What relevance does it have to the Business Awards Dinner? I think that the message is that if you don’t have the necessary controls and working infrastructure in place, you are going to hit trouble sooner or later.

I’m not a comedian, but I’m sure that there’s many people from Barings that will say that I was. I do have a sense of humour and will laugh and joke about a few things.

My talk, if nothing else, is supposed to be self-deprecating. Please take things that I say in a similar sort of vein. It can often be misconstrued as a lack of remorse or arrogance, but that is most definitely not the case. I see it more as a coping strategy for what is definitely the most embarrassing period of my life.

I’m often asked to write a short biography before I talk at events such as this. It would have to be very tongue-in-cheek and easy to sum up in a few words. Perhaps the most succinct introduction was given by a friend of mine who introduced me as the only person to write a cheque and the bank bounces.

It’s always a bit difficult to know what you want me to talk about. Unfortunately, I have done and have been through a lot in the last 37 years (Leeson’s age) and am kind of hoping that the next 37 are less eventful.

I could talk to you about the collapse of the bank, prison, cancer or even futures and options, but let’s face it, what do I know about them.

I most certainly am the focal point of the collapse of Barings Bank, the guilty party, the criminal, the rogue – pretty much any label that you wish to attach to me. I’ve certainly heard a few that can’t be repeated.

I never try to absolve myself of the blame. That would be impossible, and it would be wrong to try and do that today. I’m not a scapegoat, and never said that I was. I knew what I was doing, knew that I shouldn’t be doing it, but continued all the same.

Hopefully, as you hear the story you’ll see that there were massive levels of negligence that go largely unreported. This negligence, combined with incompetence, should have exposed my actions far earlier.

The level of risk that I undertook was probably unprecedented, but it is probably more important how and why it was able to happen.

In no way does that lessen my responsibility or blame, but I do think that it puts the collapse of the bank in the correct context.

I’ve always thought that the chances of something similar to Barings happening again was virtually zero. Barings should have been a wake-up call that no one ever forgot. I always thought that the chances of the same levels of inadequacies and incompetence occurring at the same place and time were non-existent.

The episode, however, seems only too familiar when you think of Allfirst, National Australia Bank and, more recently, Shell, who managed to overstate their oil reserves by a billion barrels.

When the details of Allied Irish’s subsidiary Allfirst hit the wire, I was watching Bloomberg at home in disbelief. Then the phone started ringing. Primarily it was friends phoning to check that I wasn’t in Baltimore (where the rogue activity had taken place). After that it was newspapers remarking on the similarities.

The similarities are frightening. Michael Buckley, the chief executive of AIB has said that there are none, but I think the correlation is 99 per cent. The only difference that I can see is that the capital base (of AIB) was sufficient to withstand the loss.

Both AIB, National Australia Bank and Barings are characterised by audit, risk management, compliance, settlements and treasury areas that failed to function correctly. Add in Shell’s situation where the overstatement was over one billion barrels of oil and you can see that common sense management has failed to prevail in all of these episodes.

All such fiascos are described as devious complex frauds. They are anything but. The products being traded may be complex. The fraud itself is very simple. Plain and simple, checks were done poorly – if at all.

I never had any intention to profit personally from the trading. From the first trade to the last trade I was trying to get myself out of trouble and only succeeded in digging myself deeper and deeper and deeper into it. There were no effective barriers to my actions and I just kept overstepping the mark.

In a risk management survey in 1995, fear of rogue traders was number three on the list (of concerns in the industry). In 2001 it had moved down to 24th on the list.

It’s amazing how easily people forget!!!

I obviously can’t speak first-hand about what happened in Baltimore or Melbourne (where Allfirst and AIB ran into trouble) but I can tell you what happened in Singapore.

I have paid what I consider to be a heavy price for my actions over the last few years. I went to prison in Singapore for a total of four-and-a-half-years and was divorced and developed cancer of the colon whilst I was in prison.

I think that most of you will agree that it was a pretty heavy price to pay.

Others will suggest that it will never be enough. I’m often asked if it was just. That’s probably the one question that I am unable to answer. I stood in front of the judge, accepted everything that has happened since that date. I can’t do more than that.

I’m still subject to an injunction for £100 million that I’m no nearer paying off. If anybody has any bright ideas they can let me know later. Failing that, there’ll be a bucket at the door for your contributions.

I’ll attempt to run you through the story briefly. I won’t get too technical. I never did then, and don’t think that I should now.

I was 25 years old when I moved to Singapore to run the futures and options operations of Barings. It was an age which I admit I didn’t have the necessary management skills and I believe that most of you will agree that the age wasn’t commensurate with the degree of responsibility that I was undertaking.

While I was on the trading floor I lost one day. I did report it to the people in Tokyo who asked me to pass it to London. I didn’t do that and it went into the now infamous five eights (88888) account.

I expected to get caught from day one. I had worked in settlements myself and knew that the first thing you do every morning was a position check and that would have exposed the error.

Over a six-month period, I started to take more and more risk to get the losses back. Any profitable trades I had were booked to Tokyo and any loses went into the now infamous five eights (88888) account. The losses started to mount.

The first audit was three months after the losses started. I didn’t have any idea how to hide the loss. There was no pre-thought to any of this. So I asked London for $5 million over the yearend and reflected it as paying off the 88888 account. None of this is rocket science and I hope you can see there was a serious lack of common sense throughout the whole episode.

I ran a loss of up to $20 million towards the end of that year. In May of 1993, I managed to get it back in credit.

During all of this period, there were visits from auditors and regulators, internal and external. Many of whom saw activity on the 88888 account but did nothing about it.

I was selling at the money options and straddles. I’m often asked why, and if there was a strategy. The answer is no. I just needed money and lots of it to hide the losses.

What I was doing was postponing the realisation of the losses on a month by month basis. I did that by selling the options. As one month’s options expired, I would sell the next available month’s options.

Volatility, which is a fairly good indication of price, during this period fell from 50 per cent to seven per cent. So there weren’t many more options that I had left for sale.

The markets started falling, my losses started increasing and as a result my position was increasing dynamically with it.

The movie (Rouge Trader) depicts an episode where I’m looking in the mirror and coming to terms with the fact that I lost $50 million in one day. Believe me, that was one of the better days.

The earthquake in Kobe at the beginning of 1995 and its resulting effect on the markets, is often given as a major cause of the collapse. I personally believe that the position that I had in the five eights (88888) account had just got too large and there was no way I could get out of it.

I left Singapore on February 23rd, 1995. I am often asked why. Another question is why did leave then. After three years, people were starting to ask some sensible questions and I couldn’t answer. They were arriving on the Saturday so I left on the Thursday..

(Leeson went to Indonesia and then to Germany where he was caught and held for nine months before being extradited to Singapore for trial).

I wrote a book that was used to pay my legal fees and gave Sir David Frost an option on the movie that nobody ever really expected to get made.

I was moved on to Singapore where I was sentenced to six-and-a-half-years in prison and was diagnosed with cancer of the colon whilst chained to a prison bed.

Incompetence, negligence and a serious lack of logic and common sense are the theme of the collapse of the bank. This has to be true of any such fiasco.

One thing I am asked about the movie is, is it an accurate depiction of what happened? I think people are over-dramatised, but the bank was really that incompetent at the time. That doesn’t mean they are an example of every banking organisation. They were very much the exception and not the rule. It is amazing how poorly they were run and that includes me as well.

The most glaring level of incompetence was, of course, my own. But if the level of governance, either internal or external, had been better, the collapse of Barings would not have happened.

It may help if we take some time to highlight some of the areas to see why they didn’t function correctly.

Infrastructure

Barings had a reputation of being at the cutting edge in developing markets, certainly in Asia. When I first went to work for them in Indonesia, they were doing 200 to 300 trades a day and they were operating out of a hotel room with one person doing all this trading. They were paying for the stock and they were buying and trying to deliver it to their customer. Their customers would refuse it because it wasn’t signed correctly or having the relevant chops on it or the relevant stamps on it. Barings had something like £200 million of unsettled trades that they were at serious exposure on.

Each department was fragmented. No one person or department had a clear overview of anything that was going into the bank. Anybody who was supposed to have some form of control over me was based elsewhere. The people who were looking after the traders were based London. The people in charge of the compliance function were in London. The risk management areas were in Tokyo.

It was a very crude of example of how easy it was for me to over-trade and break the risk management levels. My position limit was 250 to 500 contracts a day and I would be on the squawk box to somebody in Tokyo and ask them to buy 2,000 contracts at market. That would be four times the maximum limit that I was allowed to hold at anytime. That should never have been accepted.

These were the sort of things that occurred all day, every day.

I was both the senior trader and settlements person in Singapore. This has very serious and obvious implications. I was exposed to the extreme. This was pointed out regularly in audits, internal and external, but nothing was ever done about it.

Audit

The audits regularly looked at the 88888 account. It’s a myth that all the paperwork was hidden.

I was only asked for a balance sheet at month-end so I used this to my advantage. I know that once I made the balance sheet to agree on the last day of the month, nobody was going to ask me another question. So that was when I sold the options to hide the position. If anyone had picked up a balance sheet on any other day apart from the month-end, there would be a massive hole in it, which would have been the 88888 account.

As I said, I did this by selling options, effectively swapping the P & L item for a balance sheet item, which was the margin that was then deposited with SIMEX.

In over 100 visits to our offices, nobody ever did a position check. Kindergarten stuff. Things you did every morning before the market opened. And nobody ever did it. It was only when I left, that somebody else did.

The liquidators now look at the levels of trading versus commission income, the profits that were being reported, the open interest that we held and the margins that we were paying to SIMEX, and they can’t believe that such easy common sense investigation was never done.

Regulatory authorities

The regulatory authorities were poor. On a daily basis I could represent between 60 per cent and 80 per cent of the daily volume on Simex and at least 40 per cent of the open interest.

These levels of trading should have attracted more of the exchange’s attention. If any thing, they attracted less. SIMEX was a very quiet exchange before we arrived, trading 2,000 contracts a day. Barings and Morgan Stanley arrived within a very short period of each other, and very quickly were trading 20,000 contracts a day.

There was a Simex awards ceremony in 1994 when the management came out to receive the award for the top customer for volume on SIMEX. The 88888 accounts probably represented 95 per cent of that customer volume.

Simex paid 100 per cent of the option premium during this period. That’s not usual. It doesn’t happen in most markets. If they hadn’t done that, I wouldn’t have been able to do what I was doing.

The Bank of England also messed up. The capital of Barings was only £250 million and I had £500 million of it. I know I failed my math A-level, but even I could add that sum. They allowed Barings to send over 100 per cent per cent of the bank’s capital to me in Singapore when the legal limit was only 20 per cent.

Treasury used to make me daily payments of between $50 million and $100 million without any logical reason. The basic rule of futures and options is that it is a cash-rich business and you receive more money than you pay to the exchange.

The liquidators every now and then would book three days to talk to me to work out how much money we needed. The meeting would last five minutes. I would tell them just look at how over-drawn we were and ask the bank for the money.

The treasury also had to breakdown the reasons for their subsidiary lending to the Bank of England. The non-sensical reasons that I was giving them was passed on to the Bank of England.

The bank had, by the end of 1994, basically exhausted all their credit lines with other banks and didn’t have any more money to give me. Now, you would think they would look at the situation and investigate. Barings management did quite the opposite. They went to the market and issued a bond for £100 million. As soon as the management received it, they sent it to me in Singapore.

Obviously, controls are one of the things that people look at these days that are supposed to be in these markets.

They cost money and this remains a disincentive for many companies. At different times you hear calls for more or less regulation. There is a very fine line between getting it right and either being restrictive or reckless. I think that the focus should be on getting the controls correct internally. If you can make sure that those controls are effective and that they are being done well, you will be OK. It is all too easy to get complacent, and I think that is what happens in many of these situations.

Investment in technology will be vital for firms to show that they acted responsibly, but this will never be enough. There is always a human element that can make mistakes, as there are in most organisations.

Barings was an extreme case, but it does highlight the desperate need to get the balance right.

Without all of this ineptitude occurring at the same time, mine most certainly at the forefront, the collapse of Barings could not have happened.

As I have already said, I am embarrassed by everything that happened.

I, more than anybody, wish that it had never happened, but it did and I have to come to terms with it. I won’t run away from it or try to hide, that’s not my style and I will try to move on. That doesn’t please everyone and I fully accept that. Everybody is entitled to their own opinion, as too, am I.

Like all of you here, I wanted success in my chosen field.

I messed up, but that was never the way that I wanted it to be.

I don’t look for sympathy, the collapse of the bank exposed some of my own character flaws, as well of those at Barings and the Banking system.

I don’t think it’s really my place to suggest improvements in what any of you do. But I can tell you from my own experiences that the checks on my operation were totally inept and ineffective. The people doing those checks were simply not good enough and easily diverted. I’ll finish on a lighter note.

I got married last summer to a young lady from Galway, she didn’t know too much about me at the time.

But she was listening to the radio one day in Ireland and there was a dietician being interviewed and her interest was peaked by something referred to as the Nick Leeson treatment.

The interviewer asked what that entailed.

A form of colonic irrigation, the interviewer was told.

Asked for a few more details, he said that it was full of vegetables and guaranteed to clean you out.