NICK LEESON, the man who destroyed Britain's oldest merchant bank, first came to the attention of the board of Baring Brothers after a mooning incident in a Singapore bar. One executive wanted to sack him but his superior overruled him, saying Leeson had become indispensable. The sack might have been a little harsh but it would have saved Barings a lot of grief. Leeson went on to lose £830 million of Barings money, £143 million of it on one memorable day.
Leeson's own account of what happened, Rogue Trader, said his deception began as gallantry. An inexperienced girl on the Singapore Stock Exchange (SIMEX) bought when she should have sold. Leeson said he took pity on her and concealed her mistake in a special account he controlled. The authors of the present book, both Financial Times journalists, investigate the incident. On the day in question, Leeson reported that the Nikkei index "soared by 400 points", creating a loss of £20,000. In fact, on that day the Nikkei fell by 440 points, creating a profit of £20,000 on the error Leeson describes.
Leeson, this book convincingly argues, was a pathological liar with a need to be admired by his superiors. His trading on SIMEX made colossal profits for the parent bank in London. His bosses purred and awarded him six-figure bonuses. But the profits were illusory, a juggling act by a man with nerves of steel and seemingly effortless access to Barings' capital. It also helped that most of the people Leeson reported to, even at the highest level, did not understand the arcane world of derivatives trading where the commodity is not a real thing at all, not so much as a pork belly, but an option or even a punt that a given market will go up or down. Naturally, because they were his superiors they could not admit this.
They made one basic and unforgivable mistake which even a non-banker should spot. Leeson was in charge of trading on SIMEX but also in charge of the "back office", where trades are reconciled at the end of each day. Traditionally, the two functions are separated because of the risk that the trader will cook the books to conceal a mistake or inflate a success. Leeson did both, with bells on.
As well as incompetence, the Barings management displayed a degree of corporate turf-guarding that played into Leeson's hands. The people in Singapore would brook no interference from London. Look, they would say, we are producing the profits, so leave us alone. For a fatally long time, London did so.
The book opens with the dawning on Barings management that Leeson had destroyed the bank, and the subsequent efforts to save it. The other UK banks were ambivalent about what they should do. To let Barings collapse might undermine confidence in British banking, and yet it was plain it deserved fall. In the end, they decided against a bail-out because they simply could not calculate the extent of the liabilities. God only knew what horrors lay still undiscovered in Singapore.
All That Glitters is good on the excesses of 1980s merchant banking. "They picked an Italian restaurant in Fulham for their night out ... Fraser turned up resplendent in his cream-coloured St John's College, Oxford rowing blazer ... He warned the others, who were already drinking strawberry daiquiris, that nobody should spoil his blazer. Carl Strutt, the head of Asian sales, took the challenge by bribing a waiter to spill a tray of daiquiris all over the blazer
After a visit to the lavatory, this Strutt returns to find on his plate a lettuce leaf and a live snail someone had found. "We'll give you £50 to eat your starter," someone said. After bargaining it up to £100, Strutt put the snail in his mouth, but he was so disgusted he spat it out. "`You're a wimp', shouted Fraser. He reached over for the snail, dropped it in a glass of red wine and swallowed it...,'
The book is heavy going when it explores, as it must, the world of futures and options and derivatives trading. However, the general reader can skip the piling on of detail because the real story is not how but why Nick Leeson did what he did. And why he got away with it for so long.