banks: Dont worry, Rogue trading is common

Discussion in 'Trading' started by alientrader, Jan 26, 2008.

  1. Jan 26, 2008
    Leeson: Why haven't banks learnt from Barings saga?

    MONEY-MINDED: Banks are too focused on making money to plug loopholes in the system, says Mr Leeson, whose failed trading brought down Barings. -- PHOTO: AFP

    LONDON - MR NICK Leeson, the man who brought down Britain's oldest bank, on Thursday expressed shock at the extent of the rogue trader scandal that has rocked France's Societe Generale (SG).

    Mr Leeson, whose US$1.5 billion (S$2.1 billion) of failed trading forced the closure of Barings Bank in 1995, said the authorities had failed to close loopholes highlighted by his case and other scandals.

    He also described the sense of 'panic' that French trader Jerome Kerviel would have felt as his secret losses mounted at SG.

    'It's exactly the same story as Barings in 1995,' he told BBC television, commenting on the 4.9 billion euro (S$10.2 billion) fraud reported by France's second-largest bank.

    'They haven't closed down the loopholes. When you look at what the banks are trying to do, they focus on making the money. They're not too interested in trying to save it,' added Mr Leeson, who now lives in Ireland.

    SG said the single trader hid losses on share futures trading from his bosses for more than a year.


    'The first thing that shocked me wasn't necessarily that it had happened again... The thing that really shocked me was the size of it.'
    MR LEESON, on the 4.9 billion euro (S$10.2 billion) SG fraud

    When: November 1989

    'The first thing that shocked me was not necessarily that it had happened again - I think rogue trading is probably a daily occurrence in the financial markets,' said Mr Leeson. 'The thing that really shocked me was the size of it.'

    In 1995, it was discovered that Mr Leeson, a Londoner, had run up trading losses of more than ?850 million (S$2.38 billion) when he worked as a trader in the Singapore office of Barings Bank.

    He went on the run but was brought back to Singapore to face trial and served four years in prison. He said he could understand what was going through the French trader's mind in recent months.

    'The thing that I wanted, and I'm sure the thing that this guy wanted as well, was success. Success was the thing that drove him on. Probably his biggest fear is the fear of failure.

    'When he got himself into the situation, there would be a degree of panic.'

    He added: 'He survived for one day, he survived for a week, he survived for a month... Eventually, you start to believe maybe that it's not quite as bad as it was.

    'This isn't about him getting rich or getting rich quick. He's got himself into a bad situation. He's made some extremely bad decisions. There should have been checks and controls in place,' he said.

    Asked if the banking system remains vulnerable, he said: 'It is as vulnerable as it was in my day. I just didn't believe that something of this magnitude would occur.'

    'Rogue trading happens probably on a daily basis. The banks don't like bringing it to the surface because it will be a consumer confidence problem,' he added.