Singapore Sent Warnings In Barings Bank Debacle
Market regulators say bank lacked internal checks on operations
SINGAPORE — AT one time in the clubs along Singapore's Boat Quay where financial high-flyers gathered nightly after a rough day at their computers, Nick Leeson had a seemingly invincible reputation.
``He appeared to have it all at his fingertips,'' says a futures dealer, recalling that Mr. Leeson, former head of futures trading at Barings in Singapore, often set market trends that local dealers followed. ``And then it was gone.''
Barings, the venerable British merchant bank collapsed last week after Leeson bet on Japanese stock-index futures and chalked up huge losses. The Barings crisis stunned not only Singapore's hundreds of flamboyant young financiers and traders, but it also shook the officials who presided with pride over Asia's fast-growing new financial center and its third-largest futures market.
As the Barings debacle cast a pall over the city-state's financial markets, authorities moved last weekend to protect Singapore's reputation by revealing evidence that blamed both the trader and the bank's management.
In their only public comments to date on the Barings bankruptcy, Singapore investigators disclosed that there had been warning signals as early as 1992 that Leeson commanded excessive power and lacked internal checks on his operations.
In a highly unusual arrangement that is widely seen as the fatal management flaw at Barings, Leeson was not only in charge of the futures trading operation but also the office that settles trades and should have supervised his dealings.
Senior executives of the bank knew about Barings ballooning exposure on the futures market and had reassured regulators at the Singapore International Monetary Exchange, the futures market known as Simex, that the bank would cover that exposure only two week's before the financial institution crumbled, Simex regulators said.
In the first two months of this year, Barings channeled about $900 million to its Singapore futures subsidiary to cover the borrowed funds Leeson used to buy thousands of futures contracts this year, said Price Waterhouse & Co., the accounting firm the court appointed to review the Singapore operation. Singapore monetary officials say all the margin demands involving the Barings contracts have been met.
Prime Minister Goh Chok Tong said Singapore authorities had seen the trouble on the horizon and ``forewarned people involved.
``The stock market is up, Simex is trading, and there are no losses for Singapore,'' he told reporters.
Although fears of serious repercussions on Simex seem to be receding and a Dutch bank, Internationale Nederlanden Groep NV has agreed to take over the collapsed bank, an air of caution will overhang the Singapore markets until more details of the Barings debacle emerge, analysts say.
``Investors are expected to stay on the sidelines and wait for more developments to unfold on the Barings crisis as the impact on the equity market is still unclear,'' says an analyst with OCBC Investment Research in Singapore.
Singapore is now seeking extradition of Leeson who was detained in Germany after emerging from several days in hiding in Malaysia and trying to fly to Britain. According to an article in a Singapore newspaper, Leeson faxed a letter of resignation to his immediate superiors from a hotel in the Malaysian capital of Kuala Lumpur.
Based on a complaint by Barings, which estimates its losses at nearly $1.5 billion, and a document confirming payment of money to a nonexistent Barings client, Singapore has charged Leeson with ``forgery for the purpose of fraud.''
Leeson, who faces a sentence of up to seven years in prison, is fighting the extradition to avoid Singapore's stringent legal system where white-collar offenders serve time in prison alongside other criminals. Singapore sources say other charges could be pending, although it will take time for regulators to document the misdeeds.
``Nick knows how draconian they can be in Singapore,'' says a trader colleague who says he's not convinced Leeson has committed a crime. ``He has caused Singapore a lot of embarrassment, so it's unclear what they will do.''