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Vol. 17 No. 6 · 23 March 1995

What’s become of Barings?

Stephen Smith

Boarding the plane for South-East Asia, I felt like Chicken Little, waiting for the sky to fall. The markets were re-opening after the weekend when the world first heard the name of Nicholas Leeson, the man who broke the bank in Singapore. It’s hard to remember how that dawn felt – now that we have reassured ourselves at the building society, peeped with relief beneath the mattress, patted the nest-egg – but the mood then was that the bottom had fallen out of money. It was feared that even the mighty yen was in turnaround, so heaven help the poor old pound. Sydney had been up for a couple of hours, and one trader on the cobber bourse was reported as saying that ‘sterling just walked off a cliff.’ In the dealing rooms, they call this kind of talk ‘sentiment’. It seemed as though the safest place to be was high above the tumbling sky, above the collateral damage – after the fashion of American Presidents, who were to take the atomic valise onto Airforce One as hand luggage in the event of Armageddon.

I was surprised that we weren’t joined in the check-in queue by hollow-cheeked financiers. I imagined them drumming their fingers on their laptops as we girdled the globe, the pilot looking for an uncomplicated atoll where the value of the gourd was holding up against a basket of trashed post-industrialised currencies. We would put down in the limpid drink, hobble over the coral in our ragged pinstripes, and then, encouraged by the shy smiles of the simple local investors, the ageless cycle of arbitraging and leveraged buyouts could begin all over again.

As it was – I might have known – the plane was full of hacks. A correspondent from a mid-market British tabloid was asking fellow passengers if they worked for Barings, Leeson’s employer. ‘Did you know Nick Leeson?’ he asked a man near me. This scene uncannily re-created a passage from Joseph Conrad’s ‘A Personal Record’, with which I was toughing out a bout of in-flight sleeplessness.

Upon my word, I heard the mutter of Almayer’s name faintly at midnight ... I don’t mean to say that our passengers dreamed aloud of Almayer, but it is indubitable that two of them at least, who could not sleep apparently and were trying to charm away the trouble of insomnia by a little whispered talk at that ghostly hour, were referring in some way or other to Almayer.

In the story Almayer is an expatriate trader who intrigues Conrad. ‘I had heard of him in Singapore; I had heard of him on board; I had heard of him early in the morning and late at night; I had heard of him at tiffin and at dinner.’

Well, indeed, I had heard of him in Singapore all right. When I touched down here, however, I discovered that the fastidious Singaporeans were not after all Marigolding the remains of banking suicides from the steps of their high-rise offices. On the contrary, it emerged that chatter about Leeson was confined to visiting journalists. Off-duty dealers were saying nothing, no matter how hard the man from the Mirror worked Harry’s Bar (sic) with his jug of beer. Our requests for interviews with officials of various sorts were prettily non-actioned by their secretaries. They didn’t say yes and they didn’t say no. I grew so accustomed to this that when we finally found an obliging banking expert, I couldn’t get over the seeming incongruity of a shot in which he exited from a thrumming tropical arbour swinging his briefcase. The footage seemed to demand an explanatory caption – ‘Into the clearing came an accountant.’ possibly.

In a reluctantly granted, indeed almost unheard of, press conference, Mr Koh Beng Seng of the Monetary Authority uttered that always dubious assurance: business as usual. The Singapore daily, the Straits Times, explained that nobody else would be following Barings into the bottomless pit that Leeson had allegedly sunk, a sunny optimism immediately clouded by reports from Tokyo of an American institution in difficulties. People are too proud (and too modest) to let you know it, but Baringsgate has been an enormous embarrassment for Singapore, a nation which admittedly gets an attack of the vapours at the slightest provocation – it can only bring itself to publish statistics on sexual assaults under the heading ‘outraging of decency’. Louis Beckerling, a financial writer, told me that ‘the Singapore authorities wouldn’t like to admit it but these events have cast something of a shadow over their alertness as watchdogs, their efficiency as regulators. These are issues they pride themselves on in Singapore.’ The crisis broke on the eve of the country’s budget, presented by the Finance Minister, Richard Hu. Politicians in the G7 must have read him and wept. He forecast growth rates of up to 8 per cent. It’s ironic that the long-term strategy of the Lion City involves exploiting uncertainty over the financial stability of Hong Kong, but Singapore wants the business that it calculates will be taking flight from Hong Kong the closer we get to Chinese suzerainty.

You cannot fail to be struck by the rampant newness of this place. Its citizens have pagers and keyboards the way Londoners have – well, pagers and keyboards, only more so. The equatorial air itself feels charged, on-line. It’s hot enough to fry an egg on a car bonnet, but you suspect that there are parts of downtown where the ambient microwaves could do the job while the egg-carton was still in the boot. Ubiquitous, sleek apartment blocks suggest North Korea finally in possession of concrete technology. The buildings look as if they were all topped out the day before yesterday. On the other hand, the trees and shrubs which surround them clearly sprang up overnight, watered by one of Singapore’s regular crepuscular showers. You don’t consult a barometer to know what the weather will be doing here: you look at your watch. In the banking district, though, they’ve sterilised Mother Nature, and now make their own weather. The densely packed skyscrapers are effectively giant refrigeration units, each one more advanced than the last in the science of pickling air. They blow their old breath at each other night and day. I’ll swear I detected localised precipitation, a wet zephyr, as I made the round of pitiless front desks. Singapore’s climate is even more extraordinary than it appears to have been when Noel Coward was putting up at Raffles Hotel. The Master remarked of a downpour: ‘I recognised it as rain only because I knew it couldn’t possibly be anything else.’

Ah, Singapore! How hard it is to stay the pen from scribbling the ‘colony’, if only by way of a synonym. The place has been independent for thirty years. But like other southern hemisphere countries which were once tinted red on the atlas, it eerily recalls the Britain of my parents’ generation. (I write advisedly. I told my mother, only half in jest, that Singapore canes its litter-bugs. ‘Good,’ she said, joltingly.) This is the only country in the known world where Cliff Richard remains as tinglingly au courant as he was in Britain a lifetime ago. Usefully for Cliff and his Singapore sales-graph, his act is nothing if not a byword for decency. ‘He’s one artist who has not dabbled in drugs,’ said the dimpling presenter of Singapore Broadcasting’s Rollin’ Good Times during a Cliff-lookalike special. ‘Very clean life,’ assented her co-host. Dear old Singapore, where ‘tiffin’ is still the word for ‘tea’.

Filing as I am from the far archipelago, I haven’t seen anything on this affair so far which conveys the way Singapore has been screwed over by its relationship with Britain – and screwed over royally, at that. Barings, the Queen’s bankers, conferred the respectability of blue blood as well as blue chips on the emerging futures market here, setting up their operation in the mid-Eighties. The Singapore Monetary Exchange (Simex) insists that it isn’t out of pocket on the bank’s collapse – but it was hardly calculated to enhance the Exchange’s reputation. I asked Masashi Omatsu, a dealer with the Japanese bank Kankaku in Singapore, how his countrymen had reacted to the fall of Barings. ‘Heart attack!’ he replied. There’s a suspicion that Simex displayed a certain lack of sophistication in accepting Barings’ assurances over its exposed positions earlier this year. In the manner of all the best banking collapses, these notes unfortunately proved to be worth less than the paper they were printed on.

Even an amateur tipster can see that Barings haven’t come out of this at all well, notwithstanding the efforts of executive repomen from the Netherlands. Investigators in Singapore want to know why the firm was apparently unable to curb the excesses of its derivative outpost. The bank has some talking to do if it is to convince Singapore that it had rigorously applied its own in-house controls before telling the natives what they wanted to hear in order to keep them on-side. Premier Goh Chok Tong, flesh-toned with anger in the Singaporean way, nonetheless blamed the crisis emphatically on Barings. ‘It is essentially an internal problem of the Barings group,’ he said. ‘As far as the market is concerned, there has been no impact. The stock market is up. Simex is running and there have been no losses for Singapore.’

Demonstrating that they have a way with PR which amounts to an anti-talent or inverse gift, some of Barings’ top people threatened to delay the takeover by the Dutch group ING with their demands for 1994 bonuses. As a result of the Barings case, we may be about to witness changes in the only commodities market which is dependably bullish, the trade in City slang. After the golden handshake and the golden parachute, it may be time to welcome the golden roadblock and say hello to the golden hold-up. Confirmation that the bank is in new hands pleased the administrators, Ernst and Young, who claimed to have preserved the value of business operations. But if there was relief that the smart money could be tempted back to the bank, there was dismay that the old money has shown no willingness to get out of it. As I write, Peter Baring and his fellow directors remain on the board. They have elected to forego their bonuses, but seem to be waiting for the Bank of England’s interim report before making further plans. ING has said that no one would resign until after the Bank completes its inquiry. The responsibility of a gentleman banker, in respect of irregularities which may be none of his own making, no longer extends to working late at the office with a decanter and a service revolver. But City types interviewed for the business pages said departures would have helped to repair some of the damage that has been done to London, as well as Singapore, in recent weeks. One leading financier said: I just can’t understand Peter Baring and the rest. What do they think they’re playing at?’

Expectations of casualties at Barings have been heightened by claims that the man at the centre of the case is in a position to name names. Leeson is apparently willing to tell what he knows to the Serious Fraud Office despite, or rather because of, the possibility that this could lead to extradition to Britain. ‘If anyone still believes that it is Nick Leeson, rogue trader, that brought Barings down on his own, then they are fairly unrealistic,’ said Stephen Pollard, Leeson’s lawyer. He maintains that his client derived no personal gain ‘in any matters relating to this dreadful outcome ... He is being made a scapegoat for others. The information he is giving us involves a much wider circle of people in London and Singapore.’ At least three of Leeson’s former colleagues in the back office on Collyer Quay have been interviewed by the Singapore authorities. It’s not known if they were questioned about the disappearance – or shredding – of records concerning his last two months of trading. Six senior bank figures are said to have been interviewed in the Square Mile. On the day Mr Pollard was speaking came news of a letter signed by a Barings director in Singapore which assured Simex that head office was aware of its huge cash commitments over Leeson’s deals. The letter was dated 10 February. The time-lag between the last recorded moment when London knew what Leeson was up to and the collapse of the bank is getting shorter all the time.

Barings was proud of the high toff-count among its directors and customers. But the bottom line, so to speak, was that at least a fifth of the bank’s very agreeable profits in 1993 were attributed to Nick Leeson, a plasterer’s son whose education finished at his local comprehensive. The type of business which produced this bonanza is known in the money trade as ‘low quality banking’. It didn’t need Dr Jennifer Mao, of the Banking and Finance faculty of Singapore University, to point out that ‘profits achieved in this way are risky. We generally refer to something like fund management as high-quality banking, because it’s more reliable.’ According to Dr Mao, a state of affairs in which one individual is responsible not only for making deals but also for keeping the paperwork on them – as was the case at Barings Futures in Singapore – could be said in the jargon to offer a ‘moral hazard problem’.

On the basis of his audited career, Leeson might once have been described as a ‘big swinging dick’, the term of approbation favoured in the markets during the Eighties. I can’t comment on Leeson’s eventful last days at Barings, but I think it’s already well-established that he thought quite highly of himself there. He is said to have boasted to his peers of the upscale client he had on his books. There was something in this, I suppose, since the firm in question used to command assets in the region of five hundred million pounds. This claim seemed less impressive, however, when we learnt that the firm was none other than Barings itself, or rather three Barings companies. Nevertheless, sections of the press have been happy to go along with the notion of Leeson the slick hotshot. At least one paper printed a snap of him partying with his wife, Lisa, a former bank worker, when their whereabouts were still unknown.

But a wretched fax purporting to have been sent from a hotel in Kuala Lumpur at about this time didn’t strike me as the handiwork of some kind of equities top gun. There was a forlorn, beaten aspect about the 28-year-old author’s assertion that he was ‘receiving medical advice’. The leak of this document was followed by rumours that Leeson had spent his last days in Singapore throwing up in the dealing-room toilets. Most humbling of all, Leeson apparently authorised his lawyer to reveal that he doesn’t own a Porsche but used to drive a Rover. (A Rover!) Mr Pollard added that he had since sold it ‘as it was getting too expensive to run with Singapore tax’. I’m afraid I thought again of Conrad’s Almayer, the curious figure at a tropical trading post. He was waiting to meet Conrad’s vessel and a cargo which included, exotically, a pony. When the beast was winched ashore, however, Almayer somehow lost his grip on it. ‘The next thing I saw was Almayer lying flat on his back on the jetty. He was alone.’

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