Finance / The Big Interview: Nick Leeson, the original rogue trader

The Big Interview: Nick Leeson, the original rogue trader

He is the self-professed “original rogue trader” who wrecked a 233-year-old bank and suffered a miserable fate, from the years spent languishing in a Singapore prison to his divorce and struggle with cancer. Nearly 20 years after the collapse of Barings Bank, Nick Leeson’s “biggest mistake” continues to cast a long shadow – something he, by his own admission, has found difficult to accept.

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For him, it was a story of unchecked risk-taking, where a furious obsession with success, a stifling culture of fear and a lack of adequate communication led to him “treading water with no hope to surface”. Leeson quietly ran up some £862million in losses, which eventually toppled the UK’s oldest investment bank and sent shockwaves through the world of global banking.

“There’s a phrase that does the rounds that everybody reaches their own level of incompetence,” he tells me over coffee. “I probably did that at that period, and there wasn’t the support and the structures in place at Barings at the time. I had poor coping strategies and avoided coming to terms with what was going on. I didn’t understand the risk that I was taking – both personally and the risk I was putting the organisation under.”

Leeson, more than anyone else, is associated with the downfall of the banking institution. At the same time, he has managed to turn his turbulent legacy into something brighter. After surviving incarceration and illness, Leeson’s experiences have led to a book, a film, and his reinvention as a conference and after-dinner speaker, telling risk management and financial services professionals all the lessons he learned so painfully and publicly in the 1990s.

It is likely that, for some, he remains a controversial figure. But Leeson, who speaks softly and openly, says he is rarely badly received by audiences. “I have never had a negative reaction, except once at St Andrews Golf Club in Scotland. I was heckled by Sir Gavin Laird, who was a former trade union leader,” he says. “He thought what I did was co-ordinated and that I set out to undermine the banking system. That’s a load of b*****ks.

“If I was asked to describe the fraud I was involved in, the only word I could use was ‘crude’. It’s about people not understanding and lacking the detail.”

He may not believe in fraud conspiracies but Leeson – who is on his way to speak at a conference in Mexico when we meet – now spends time travelling the globe, warning professionals how to spot the very real threats to their organisations.

His own story is no exception, with the recent history of banking littered with colourful and damaging events including the financial crash, the Libor scandal, the actions of the “London Whale” trader and BNP Paribas, France’s largest bank, being hit with a $9billion settlement over alleged sanctions violations.

This has provoked a number of responses, from harsh punishments – including large fines and prison sentences – to a broader focus on regulation, with the intention of making banks more cautious and risk-averse. But for Leeson the knowledge from his own experience – around people, cultures and enforcement – remains the most valid.

“Financial markets are complex and innovative,” he warns. “They are fast and getting more so. If your own internal cultures aren’t keeping pace, then you are in danger.” He tells me that a strict, unambiguous moral code needs to be established and that staff should be encouraged to speak out about problems before it is too late. “Communications become very important within an organisation but people become influenced by what they see,” he says.

“If behaviour is wrong, it’s always wrong. It can’t be wrong sometimes. That presents an ambiguity that people get resigned to. You look at things like Libor. If people see that going on, it becomes more widespread. It becomes market practice because everyone’s doing it. It becomes more acceptable. People don’t understand grey. Everyone can deal with black and white, but the deterrent needs to be adequate.”

These issues, he says, all played a role in the Barings disaster. Even though he was well aware of the huge losses being racked up, Leeson says he never realised the bank would go to ruin. “I knew the effect of my accounts was going to be calamitous, but not as calamitous as it was,” he says. “I knew there were going to be significant losses. You come to exist in a parallel area where you are just not worrying about it. I didn’t wonder every day about the money. It only became an issue for me when I didn’t get paid.

“The number of zeroes doesn’t make the money not real. I still know what 50 quid feels like in my pocket. But since you are in that difficult situation, you are consumed by other things. You continue avoiding it like a lot of people do with debt these days. I genuinely didn’t realise at any stage that the bank was going to collapse.”

Leeson accepts, with trademark candour, that he was at fault for what happened. But he also believes that with Barings and many of today’s large organisations, a culture where people are encouraged to spot mistakes is vital. “The responsibility is entirely mine but there were a lot of other people at the organisation who weren’t particularly good at their jobs,” he says. “They were all dyed-in-the-wool bankers who had lots of experience – but they didn’t ask the important questions.

“With that lies one of the biggest problems of any organisation: asking the difficult questions. The biggest threat is that people still find it difficult to ask what are thought to be simple questions – but they are really the difficult questions. Psychologically they are quite difficult to ask, because they expose a lack of understanding.”

Solving this, he says, comes down to a number of cultural changes which should be set from the top. He tells me, with some pleasure, that a friend of his who runs a bank urges new employees to admit their mistakes on the job, using Leeson’s story as an example of the potential consequences of keeping quiet. For his part, Leeson is calling for clarity around risks combined with a freedom to speak out about problems. He says: “I see people getting caught up in the feel-good factor that everybody’s in – everybody’s making money and people don’t remember what went on before,” he says. “Look at the Barings collapse and Libor. They should learn from that.

“I think communication is a great tool for changing the culture. I worked in an organisation that was more about competition. People talked about their successes but never talked about their failures and how they were feeling. Talking about that is crucial. You need to get away from that whole fear that you will lose your job or bonus [if you admit to mistakes]. That can result in the type of behaviour I had. Failure was the one thing I just could not countenance. I was very blinkered. I couldn’t put my finger on when it was, but at one stage you go from being slightly out of your depth to completely treading water with no hope to surface.”

In a time steeped with financial and corporate scandals, Leeson believes that an open culture and the ability to challenge others can steer organisations away from the risks they face. But there are some things, including controversial bonuses, which he believes are here to stay. He says: “I never do the banking industry down because I loved it when I worked in it. I have had many discussions with regulators saying what they will do and how things get better, but regulators are always behind the curve.

“There was a debate about how to change bonuses. Nothing happened. If we are going to try and change a banker’s bonus structure, I think within 15 minutes they will have a new structure that works in the same way. They have the best accountants and lawyers. They push boundaries to the extreme. If something’s legal or as legal as it can be, they will do it.”

Despite this, and an insistence on being realistic, Leeson seems upbeat about the future in a number of respects. He is happy that the financial crisis has prompted the media and government to challenge banks more robustly, saying it keeps the general population more informed and means more questions are asked.

And he praises some brands, such as challenger bank Metro, in being more service-related, in what he hopes could be an industry-wide shift from sales to looking at what customers want. “We need to go to a situation where the bank manager knows a local customer,” he says.

Beyond that Leeson, who lives in Ireland with his second wife and children, appears to have moved from his rogue trader existence to a happier place. When I ask him what motivates him in his speaking duties, he turns to me with a grin. “It’s a good source of income,” he says. “And it has no emotional baggage for me.”

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