Description
The PPT explaining about what went wrong in Barings Bank.
WHATEVER HAPPENED AT BARINGS?
Introduction
?
?
?
On 27th Feb 1995 Barings bank one of the oldest banks UK was declared Bankrupt. Cumulative trading loss of £827m on 27th February, 1995 Increased to £927m till closing out
About Barings
?
?
?
Barings Bank was United Kingdom’s the oldest and one of the most reputed banks. It was established in 1762 by Francis Baring. It was set up as a traditional merchant bank. Losses result of
? Mismanaged
derivatives trading ? All trading activity concentrated with one person ? Ineffective organizational structure
Group structure
Barings PLC
Baring Asset Mgmt
Baring Brothers & Co – bank
Barings Securities
Barings Investment Management
Baring Investment Bank
Nick Leeson
?
?
? ?
Nick lesson was employed by Barings to make arbitrage profits by taking the advantage of price differences of similar contracts on the SIMEX (Singapore) and Osaka stock exchanges. He traded options and maintained un-hedged positions illegally. Kept enormous positions on SIMEX Concealed his activities by creating a fictitious account
What happened on 27 Feb 1995?
? ? ?
Cumulative trading loss of £827m on 27th February, 1995 Losses increased to $927 million Barings also incurred additional costs on
? SIMEX
takeover ? Forex losses ? Closing out the open positions
?
The shareholders funds was just 354 million
Reasons for the downfall
Analysis of trading strategies used by Lesson
?
?
Lesson dealt in proprietary and client account trading Leeson dealt in the following securities:
? Nikkei
225 on SIMEX and OSE ? 10 year JGB on SIMEX and TSE ? 3 month Euroyen on SIMEX and TIFFE
Strategies used
?
?
? ?
Leeson used the inter-exchange arbitrage This enables limited profits on large volumes Pure arbitrage trading is risk free Timing difference can create risk
? Leeson
had unhedged positions on individual securities
Payoff from a butterfly spread
?
?
?
Straddle involves no initial investment Unlimited loss potential A very risky strategy
Payoff from writing a straddle
?
?
? ?
Needs initial investment. Profit pattern similar to straddle Loss limited A less risky strategy than Straddle
THANK YOU
doc_112649799.pptx
The PPT explaining about what went wrong in Barings Bank.
WHATEVER HAPPENED AT BARINGS?
Introduction
?
?
?
On 27th Feb 1995 Barings bank one of the oldest banks UK was declared Bankrupt. Cumulative trading loss of £827m on 27th February, 1995 Increased to £927m till closing out
About Barings
?
?
?
Barings Bank was United Kingdom’s the oldest and one of the most reputed banks. It was established in 1762 by Francis Baring. It was set up as a traditional merchant bank. Losses result of
? Mismanaged
derivatives trading ? All trading activity concentrated with one person ? Ineffective organizational structure
Group structure
Barings PLC
Baring Asset Mgmt
Baring Brothers & Co – bank
Barings Securities
Barings Investment Management
Baring Investment Bank
Nick Leeson
?
?
? ?
Nick lesson was employed by Barings to make arbitrage profits by taking the advantage of price differences of similar contracts on the SIMEX (Singapore) and Osaka stock exchanges. He traded options and maintained un-hedged positions illegally. Kept enormous positions on SIMEX Concealed his activities by creating a fictitious account
What happened on 27 Feb 1995?
? ? ?
Cumulative trading loss of £827m on 27th February, 1995 Losses increased to $927 million Barings also incurred additional costs on
? SIMEX
takeover ? Forex losses ? Closing out the open positions
?
The shareholders funds was just 354 million
Reasons for the downfall
Analysis of trading strategies used by Lesson
?
?
Lesson dealt in proprietary and client account trading Leeson dealt in the following securities:
? Nikkei
225 on SIMEX and OSE ? 10 year JGB on SIMEX and TSE ? 3 month Euroyen on SIMEX and TIFFE
Strategies used
?
?
? ?
Leeson used the inter-exchange arbitrage This enables limited profits on large volumes Pure arbitrage trading is risk free Timing difference can create risk
? Leeson
had unhedged positions on individual securities
Payoff from a butterfly spread
?
?
?
Straddle involves no initial investment Unlimited loss potential A very risky strategy
Payoff from writing a straddle
?
?
? ?
Needs initial investment. Profit pattern similar to straddle Loss limited A less risky strategy than Straddle
THANK YOU
doc_112649799.pptx