The Collapse of Barings [Paperback]

The story of Nick Leeson and the collapse of Barings happened 10 years ago, but it continues to hold my imagination. Perhaps I had been captivated by Barings' former mystique. Stephen Fay's book is well researched and may be the best of the "Barings" books (I have not yet read the others). It appears to be a well balanced account which takes in what (the hell) Leeson says he was up to and compares it against the official investigations, observations of others in the firm, and adds a dash of common sense, in an attempt to try to provide a total picture of the debacle.

One thread running through Fay's book is the weakness of Barings' control systems; the Bank was apparently attempting to enter the 21st century with 19th century risk management techniques. Another subtext is that a lot of the successful management alchemy that had driven Barings in its Victorian heyday had been bred out of the firm by the time Nick entered the picture, so that top executives lacked the necessary antennae to tune into or uncover the risks which Leeson was exposing them to. I admit there is a lot of strength to the argument that there was a lot of willful ignorance going on with all of Leeson's fake profits to prop up the bottom line, as Fay says:

"Greed is the easiest of the...motives to understand. In the old days, most of the Baring family - especially those who worked in the bank - were very comfortably off. Their motives were a blend of influence in [London], social position and a bit of public service. The clerks were not greedy because they were in no position to be. Big Bang in 1985 altered that, and the fast growth of derivatives markets in the late 1980s changed it beyond recognition. Having transferred their last shares to the Baring Foundation, the directors now relied on bonuses to earn good money. But much of the firm's profit now depended on the people who had once formed the function of the clerks."...like Leeson, who was on his way up from that station.

A strength of the Fay text is that it is completely devoid of a tabloid approach to the whole topic. There are not even any pictures, certainly not of Lisa Leeson in tears, unless you count Nick in handcuffs on the dust jacket (I am also excepting photocopies of memos and faxes, which are informative). This book is written with an organization that an auditor could love, and apprentices at the major securities trading firms of the world could do worse than read this book on their first day of employment.

Perhaps it doesn't matter looking back that the Bank of England failed to bail Barings out; I hope that the folk once employed there have gradually made their way in the world, I even hope the (still married?) Nick & Lisa have sorted out their lives. Barings seems like an antique, a fine piece of China that finally fell off a shelf and shattered. It could have been different, if Christopher Heath's trading culture had been better melded with the Bank's stuffy side; if they had, earlier on, spent GBP 10 million on that fancy new trading system called BRAINS (and figured out Nick before he figured out how to hack it); if they had roused themselves earlier to investigate various holes in their trading accounts and tracked down the origin of the SLK receivable. If only, if only, if only... Such are the decisions of life.

I have bought this book with the intention of reading it slowly during the coming summer, and then deciding on whether I will make it a Complusory Reading text for my Banking Regulation students at The University of Malta. Meanehile however Amazon have been excellent in getting the book to me on time.