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The Collapse of Barings (B)

Subject

Strategy and Entrepreneurship, Organisational Behaviour

Publication Year

2001

Abstract

In 1995 Barings, one of Britain's oldest private banks collapsed after losses of £830 million caused by the actions of Singapore-based trader Nick Leeson. Case study A examines the psychological and organisational factors that contributed to the collapse. Leeson's use of a secret account which enabled him to hide his huge trading losses from his managers was a key factor in his successful deception. Despite mounting concern about Leeson's trading activities and the discovery of significant unexplained transactions, it was not until an earthquake in the city of Kobe which caused the Japanese market to fall to low levels that Leeson realised he could no longer sustain his position. His unhedged bets on the Nikkei index had led to losses so great that Leeson fled his job and his home. Leeson was arrested on his way back to the UK, subsequently tried and spent several years in Singapore's Changhi prison. The combination of an individual seeking to build his reputation and driven to appear successful with an organisation that sought to expand its derivatives business, had unclear lines of management and communication and was willing to some of Leeson's misdemeanours because of his apparent success is critical to Baring's downfall. Case study B summarises the aftermath of the collapse. The penalties for the individuals involved are presented. Two similar events, at Daiwa Bank and the Sumitomo are outlined.

Topic List

Organisational Structure, Reward and Bonus Systems, Organisational Strategy, Psychological Factors, Managerial Control and Command, Agency Issues, Prospect Theory: The Influence of Loss and Gain on Decision Making, Escalating Commitment

Industry

Finance

Publication Event Date

1989-1995

LBS Case Number

CS-01-008

Location

Singapore/London

Publication Organisation Size

Large

Project Funder

AXA

Supervisor

Nicholson, N, Audia, P

Available on ECCH

No


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