portfolio

Barings collapsed because it could not meet the enormous trading obligations, which Leeson established in the name of the bank. When it went into receivership on February 27, 1995, Barings, via Leeson, had outstanding notional futures positions on Japanese equities and interest rates of US$27 billion: US$7 billion on the Nikkei 225 equity contract and US$20 billion on Japanese government bond (JGB) and Euroyen contracts. Leeson also sold 70, 892 Nikkei put and call options with a nominal value of $6.68 billion. The nominal size of these positions is breathtaking; their enormity is all the more astounding when compared with the banks reported capital of about $615 million.

The size of the positions can also be underlined by the fact that in January and February 1995, Barings Tokyo and London transferred US$835 million to its Singapore office to enable the latter the meet its margin obligations on the Singapore International Monetary Exchange (SIMEX).

Reported activities (Fantasy)

The build-up of the Nikkei positions took off after the Kobe earthquake of January 17. This is reflected in Figure 10.1 - the chart shows that Lesson's positions went in the opposite direction to the Nikkei - as the Japanese stock market fell, Leeson's position increased. Before the Kobe earthquake, with the Nikkei trading in a range of 19,000 to 19,500, Leeson had long futures positions of approximately 3,000 contracts on the Osaka Stock Exchange. (The equivalent number of contracts on the Singapore International Monetary Exchange is 6000 because SIMEX contracts are half the size of the OSE.) A few days after the earthquake Leeson started an aggressive buying programme which culminated in a high of 19,094 contracts reached about a month later on February 17.

Figure 10.1 Baring's Long Positions against the Nikkei 225 Average.
Source: Datastream and Osaka Securities Exchanges