At the beginning, two of Lison's subordinates and friends made mistakes during the transaction, resulting in losses. In order to avoid being affected by them, Lison was determined to help them hide their mistakes when the losses were not large, so he used "88888" wrong account.
As the Nikkei Index rose, the losses caused by errors further expanded. When the losses expanded to millions of pounds, Leeson no longer dared to report these errors to the head office.
Now Leeson has to solve three problems: first, how to make up for these mistakes and fill the investment deficit caused to the bank; second, how to avoid the headquarters after recording the errors into the "88888" account Monthly internal supervision and audit; third, the futures trading center requires them to add margin every day, and this amount will reveal how much the Singapore branch loses every day. At the same time, the "88888" account can also be exposed on the big screen of the futures center.
Leeson had no choice but to transfer the commissions he earned into his futures account to cover up the account losses. At the same time, in order to earn enough money to compensate for all losses, Leeson took on increasing risks in private transactions. Start trading a lot of straddles.
The characteristic of this kind of transaction is that if the Nikkei index stabilizes, Leeson will earn option premiums from such a transaction. But the risk is that if you are unlucky and the Nikkei Index moves violently, this transaction will suffer huge losses.
For a long period of time, Lisson did very well. By July 1993, he had evened out all the six million pound losses in the "88888" account and turned it into a slight profit. If Mori stops here, then things won't happen anymore.
However, another mistake happened next. In the last quarter of 1993, the Nikkei Index began to fluctuate, and transactions began to become very active. However, the computer screens used by banks for clearing records frequently malfunctioned. There is a backlog of recording countless transactions.
Because the system was not working properly and transaction records relied on manual labor, errors were inevitable. For several days in a row, the Nikkei Index was soaring at a record high. By the time the error was discovered, Leeson's branch was The losses have reached hundreds of thousands of pounds.
With no other way out, Leeson decided to continue hiding these mistakes.
By 1994, the losses in the "88888" account had reached 50 million pounds. All he could think about at the time was which direction of market movement would turn defeat into victory and make up for the losses in the "88888" account.
In the second half of 1994, Li Sen believed that the island nation's economy had begun to emerge from recession and the stock market would have a rising trend. The opportunity he had been waiting for had finally arrived.
Without authorization, he subscribed for US$7 billion worth of island stock index futures in the name of a bank, and bought US$20 billion worth of stock index futures in the island country’s futures market by short-selling. Short-term interest rate call option bonds.
If these transactions are successful, Lisan will gain huge benefits from them, which will not only cover the book losses, but also bring him hundreds of millions of pounds in profits.
It was at this time that Zhou Zhi began to notice Li Sen.
Although Leeson was able to escape the supervision of the British headquarters, it was because the two places were half a world away and the current communication methods were not very smooth.
But it could not escape the eyes of the AXA Fund Intelligence Department, which paid great attention to the Asian market.
Due to Lison’s reputation as a gold medal trader, transactions with leverage ratios of dozens of times and huge amounts, it was impossible not to attract Li Laosan’s attention.
The very funny situation is that Li Laosan himself is now also at the headquarters of Barings Bank.
The Intelligence Department's analysis is almost the same as Leeson's judgment. They also believe that the island nation's economy has begun to emerge from recession and the stock market will have a rising trend.
Even further, this is true for the entire Asian and world economies.
So prepare to follow Leeson's moves. However, when the report came to Zhou Zhi, just the words Bahrain Bank frightened Zhou Zhi to the core.
Although he did not know Leeson, the collapse of Barings Bank in the previous life was a major event that shocked the world.
So he asked the AXA Fund Intelligence Department to conduct a detailed follow-up review and investigation of Leeson's trading behavior.
A big problem was discovered at this time. It was obvious that Leeson's trading behavior was too radical, so radical that it was no longer in line with the style of an investment bank.
There are only two possibilities for Leeson to do this. The first is that he is absolutely sure of the recovery of the island country's economy and even the world economy. The second is that Leeson is making a big gamble.
Then the question arises. The first possibility is absolutely impossible. No matter how confident you are, investing is a prudent act, especially for investment banks.
If it is the second type, what is the purpose of Nasenhao's gambling?
Everything should be taken seriously. There are errors that cannot be detected by the headquarters of Barings Bank. After reviewing Leeson's trading behavior, the Intelligence Department deduced the greatest possibility - to fill the deficit and make a big profit. Pen.
He even made a more accurate assessment of Leeson's deficit, which was at least over 50 million pounds.
After using these 50 million pounds to hedge Leeson's performance over the past two years, can this genius trader of the Nikkei Index still live up to his reputation?
After taking off this halo, Li Laosan discovered the huge risks of Lisen's operation under careful reminder.
That is when the Nikkei Index rises steadily. The overall income from Leeson's operation will be very good. In the end, if the Nikkei Index rises as expected, the income will be at least more than 200 million pounds.
But there is a huge risk involved, that is, if the Nikkei Index falls sharply, the amplification effect of dozens of times leverage will cause the 225 futures contract and the interest rate futures contract to suffer huge losses.
According to the calculations of the Intelligence Division, once the Nikkei 225 index fell below 18,500 points, Leeson's position would lose more than two million US dollars for every point it fell thereafter.
Even slightly more severe fluctuations will bring about slight increases in returns and sudden increases in risks.
Obviously, if something is going to cause Leeson to liquidate his position, or even make it difficult for all the liquid assets of Barings Bank to cover its liabilities, then there can only be some reason why the rising momentum of the Nikkei Index was suddenly interrupted. Interrupted, resulting in a plunge, and the extent of the plunge must be at least as deep as around 17,900 points.
Under careful request, the AXA Fund Intelligence Department roughly calculated the scale of Barings Bank’s investment in the Nikkei Index. Judging from the known information, Leeson’s first investment in 1995 was Within months, it began to require London to remit 10 million pounds every day to pay for its additional futures margin. Calculated based on this scale, in fact from 1993 to 1994, Barings Bank invested more than 110 million pounds in the Singapore futures market and the island market, which has long exceeded the Bank of England's overseas investment limit stipulated by the Bank of England. Total funds should not exceed the 25% limit of total funds.
For this reason, Barings regarded this as the "tacit approval" of the Bank of England. The most incredible thing is that at the end of last year, Barings discovered that the balance sheet showed a difference of 50 million pounds. , still not alert to the looseness and negligence of its internal controls.
Bahrain's managers couldn't help but not delve into the possible problems. Instead, they believed in Leeson too much and expected him to make money for Bahrain's arbitrage.
In the final analysis, it is because of excessive greed.
In the futures market, if you understand other people's risks, it is entirely possible to turn them into your own wealth. Since Bahrain is so careless, and since Ansheng has discovered it, it is impossible not to have some success. (End of this chapter)