Baring Collapse

In: Business and Management

Submitted By khaiqing
Words 6001
Pages 25
TISSA – UUM

SECOND SEMESTER SESSION 2015/2016

BKAA2013 AUDITING AND ANSURANCE 1

GROUP ASSIGNMENT
BARINGS COLLAPSE

GROUP C

PREPARED TO: DR. ROSE SHAMSIAH BT SAMSUDIN

PREPAED BY: NAME | MATRIC NO. | CHAN KHAI QING | 233058 | TAN JIE YING | 233076 | YAP YEE WAN | 233152 |

SUBMISSION DATE: 15 MAY 2016
TABLE OF CONTENTS 1.0 Case Summary 1 2.0 What are Ethics? Generally, why do people act unethically? 2 3.0 Justify why is there a special need for ethical conduct in professions including those in the accounting and auditing related field? 6 4.0 Discuss how the Barings collapse serves as an example of failed internal controls and governance within organization. 13 5.0 Conclusion 20

1.0 Case Summary
Nick Leeson, an employee of Barings Bank who after a successful spell working for the firm's office in Indonesia is sent to Singapore as General Manager of the Trading Floor on the SIMEX exchange. Leeson's rise as he soon becomes one of Barings' key traders. However, everything isn't as it appears — through the 88888 error account, Nick is hiding huge losses as he gambles away Baring's money with little more than the bat of an eyelid from the powers-that-be back in London.
Eventually the losses mount up to well over £800 million and Nick, along with his wife Lisa, decide to leave Singapore and escape to Malaysia. Nick doesn't realise the severity of his losses until he reads in the newspaper that Barings has gone bankrupt. They then decide to return to London but Nick is arrested en route in Frankfurt. Nick is extradited to Singapore where he is sentenced to six and a half years in jail and is diagnosed with colon cancer.

2.0 What are Ethics? Generally, why do people act unethically?
At its simplest, ethics is a system of moral principles. They affect how people make decisions and lead their lives. Ethics is concerned with what…...

Similar Documents

Fall of Barings Bank

...A Project on All That Glitters: The Fall of Barings Bank A CASE STUDY ON RISK MANAGEMENT AND INTERNAL CONTROLS Introduction: In 1995 Britain’s oldest merchant bank of two hundred years came to a dramatic and fatal halt. The bank was Barings. The demise of the bank was brought about as a result of the actions of a derivative trader, Nick Leeson, stationed in Singapore. Without a careful and considered review one may be tempted to conclude that the blame rests solely on Nick Leeson. But if you think with analytical mind, you will ask: how is it possible that this one man was able to cripple a financial giant? What was the role of senior management in this situation and did they contribute to the demise? How effective were the internal control systems, Risk management system and was the Singapore operations managed effectively? The answer to these and similar questions would be indeed interesting and insightful in analyzing the debacle of Baring Bank. Reported on very widely in the nineteen- nineties, this bank collapse still holds significant lessons for those involved in the management of financial institutions. The objective here is not to prove definitively the exact cause of the collapse but to show, by way of a very narrow discussion, how certain deficiencies in internal controls and risk management systems impacted the bank and ultimately led to its collapse. When Barings collapsed it had a capital of approximately $600 million. Contrast this......

Words: 3822 - Pages: 16

Barings Bank

...________________________________________________________________________ BARINGS – A CASE STUDY IN RISK MANAGEMENT AND INTERNAL CONTROLS Author: Hubert Edwards September 2004 In 1995 Britain’s oldest merchant bank of two hundred years came to a dramatic and fatal halt. The bank was Barings. The demise of the bank was brought about as a result of the actions of a derivative trader, Nick Leeson, stationed in Singapore. Without a careful and considered review one may be tempted to conclude that the blame rests solely at his door step. The analytical mind, may however ask: how is it possible that this one man was able to cripple a financial giant? What was the role of senior management in this situation and did they contribute to the demise? How effective were the internal control systems and was the Singapore operations managed effectively? The answer to these and similar questions would be indeed interesting and insightful in analyzing the debacle that Baring proved to be. Reported on very widely in the nineteennineties, this bank collapse still holds significant lessons for those involved in the management of financial institutions. The objective here is not to prove definitively the exact cause of the collapse but to show, by way of a very narrow discussion, how certain deficiencies in internal controls and risk management systems impacted the bank and ultimately led to its collapse. When Barings collapsed it had a capital of approximately $600 million.......

Words: 2670 - Pages: 11

Baring Bank Case

...Controls and the Collapse of Barings Bank __________________________________________________________________________________________ Commodities Trading: Nick Leeson, Internal Controls and the Collapse of Barings Bank By Sam Bhugaloo Page 1 of 21 Commodities Trading: Nick Leeson, Internal Controls and the Collapse of Barings Bank __________________________________________________________________________________________ Table of Content Introduction.................................................................................................................................3 Background and Overview… ......................................................................………… ........ .....4 Barings Bank...............................................................................................................................5 Internal Controls at Barings Bank.............................................................................................13 Lessons Learned and Steps Taken to Preclude Recurrences . ..................................................15 Conclusion ................................................................................................................................18 References.................................................................................................................................20 Page 2 of 21 Commodities Trading: Nick Leeson, Internal Controls and the Collapse of Barings Bank ____________...

Words: 5242 - Pages: 21

Barings

...Controls and the Collapse of Barings Bank __________________________________________________________________________________________ Commodities Trading: Nick Leeson, Internal Controls and the Collapse of Barings Bank By Sam Bhugaloo Page 1 of 21 Commodities Trading: Nick Leeson, Internal Controls and the Collapse of Barings Bank __________________________________________________________________________________________ Table of Content Introduction.................................................................................................................................3 Background and Overview… ......................................................................………… ........ .....4 Barings Bank...............................................................................................................................5 Internal Controls at Barings Bank.............................................................................................13 Lessons Learned and Steps Taken to Preclude Recurrences . ..................................................15 Conclusion ................................................................................................................................18 References.................................................................................................................................20 Page 2 of 21 Commodities Trading: Nick Leeson, Internal Controls and the Collapse of Barings Bank ____________...

Words: 5242 - Pages: 21

The Collapse of Barings

...Controls and the Collapse of Barings Bank __________________________________________________________________________________________ Commodities Trading: Nick Leeson, Internal Controls and the Collapse of Barings Bank By Sam Bhugaloo Page 1 of 21 Commodities Trading: Nick Leeson, Internal Controls and the Collapse of Barings Bank __________________________________________________________________________________________ Table of Content Introduction.................................................................................................................................3 Background and Overview… ......................................................................………… ........ .....4 Barings Bank...............................................................................................................................5 Internal Controls at Barings Bank.............................................................................................13 Lessons Learned and Steps Taken to Preclude Recurrences . ..................................................15 Conclusion ................................................................................................................................18 References.................................................................................................................................20 Page 2 of 21 Commodities Trading: Nick Leeson, Internal Controls and the Collapse of Barings Bank ____________...

Words: 5242 - Pages: 21

Commodities Trading: Nick Leeson, Internal Controls and the Collapse of Barings Bank

...Controls and the Collapse of Barings Bank __________________________________________________________________________________________ Commodities Trading: Nick Leeson, Internal Controls and the Collapse of Barings Bank By Sam Bhugaloo Page 1 of 21 Commodities Trading: Nick Leeson, Internal Controls and the Collapse of Barings Bank __________________________________________________________________________________________ Table of Content Introduction.................................................................................................................................3 Background and Overview… ......................................................................………… ........ .....4 Barings Bank...............................................................................................................................5 Internal Controls at Barings Bank.............................................................................................13 Lessons Learned and Steps Taken to Preclude Recurrences . ..................................................15 Conclusion ................................................................................................................................18 References.................................................................................................................................20 Page 2 of 21 Commodities Trading: Nick Leeson, Internal Controls and the Collapse of Barings Bank ____________...

Words: 5242 - Pages: 21

Collapse

...Collapse- book is about a history topic about how societies choose to fail or survive. The main characters are historical people and unknown kings of Mayan cities or Easter Island villages. Jared Diamond tells the story of the Viking explorer Erik the Red, who discovered Greeland and Vinland (Terranova, in Canada). Another character is captain Olafsson, a norse sailor who wrote the last news about Greenland in 1410. Another main character is Christopher Columbus, who arrived at Hispaniola in 1492, but now this island is two countries, the Dominican Republic and the Haiti. Diamond studied the politics of two presidents. the dominican Rafael Trujillo, who protected the enviroment and the dictator François, Papa Doc, Duvalier, who decided on politics of deforestatation of his country, Haiti. The author considered the bad politics of another main character, king George II, who was interested in sending merinosheeps from Spain to Australia, an idea which was succesful from 1820 to 1950 but then the farmers understood their lands lost fertility. Another main character is Tokuwaga Jeayasu, a shogun of Japan in 1600, who prohibited Christianity in 1600 and protected his country againt deforestation.  The book takes us to a lot of places around the globe: Mayan cities, Rwanda, Viking colonies of Vinland or Greenland, Haiti and Dominican Republic, Easter Island and Polynesian colonies in Pacific, and the Chaco villages in New Mexico (United States). The time period was from 800......

Words: 22095 - Pages: 89

Baring Bank

...Barings bank, was founded in London, UK, in 1763 as a merchant bank. During 80’s it started to have big international success. And in 1995 it collapsed because of general manager in charge of setting up the trading operations in Singapore (Mr. Leeson).  The whole story started when Mr. Leeson found out that there was an error, when one of his phone clerks sold the contracts rather than bought them. That day the loss was calculated to be 20,000 Pounds. The only thing he could do was to close the deal only in the upcoming Monday. Because of a busy day on Monday, Mr. Leeson forgot and now this was a problem that could affect not only the clerk but also him. So, he decided to hide this error permanently in an account 88888, but after some days this error could cost the firm 60,000 Pounds so this became a very serious problem that could cause Mr. Lesson troubles with his position in the company and also affect his bonuses (which until now were really high). So he decided to hide this error, and lots of others made by him or his team, which they reached the loss of almost 1 billion dollars.   Why did Mr. Leeson behave that way? While reading the case, you can understand that one of Mr. Leeson’s ambitions was to become a floor trader. When he was sent to Singapore, his position was to control both settlement and floor operations and this was not a common practice for Bearings. This way he could control the firm’s operations and also in the same time work in the back office, which...

Words: 3333 - Pages: 14

Case Study- the Collapse of Barings Bank

...Case study- The Collapse of Barings Bank 1. What was Nick Leeson’s strategy to earn trading profits on derivatives? The play here was very simple – trading futures on the Nikkei 225 as the underlying. The Nikkei 225 was traded as a future on both the SIMEX and the Osaka markets. There were always known to be differences between the two markets which could be arbitraged. The idea was to exploit the differences between the 2 markets , and execute in the cheaper market on client orders. This would then allow Barings to net a profit as they execute in the cheaper market but quote the client the price in the more expensive market. The underlying idea was of course to always be long one and short the other. Leeson was long Nikkei 225 futures, short Japanese government bond futures, and short both put and call options on the Nikkei Index. He was betting that the Nikkei index would rise, but instead, it fell, causing him to lose $1.39 billion. 2. What went wrong that caused his strategy to fail? Nick Leeson’s strategy failed because the Nikkei 225 index kept falling while he continued to bet that it would rise. On the 17th of January 1995 a huge earthquake struck Kobe in Japan. The Nikkei plummeted putting Leeson’s positions under a lot of stress. The Nikkei plunged to 17950 by the end of that week and Leeson started recording big losses. Leeson’s solution was however to ask for extra funds from London to meet his margin calls and continue trading. His view was that the move......

Words: 865 - Pages: 4

The Collapse of Barings Bank

...well in the Singaporean business culture? Using his example or other examples, comment in general regarding the problems that are faced by "Ex Pat's" and their employers. (Ex Pats are workers that are sent from the home office to work in the foreign branch of a multinational). 3. Compare Mr. Leeson's frequent career moves with that of a Japanese employee with a lifetime corporate loyalty. Comment on the advantages and the shortcomings of each system. 4. What are the purposes of the following rules and how did the deviations from these rules help bring down Barings? a) Separation of the settlement and general trading functions. b) Margin requirements b) Deducting errors from year-end bonuses d) Not paying for a customer's margin call from a firm's corporate funds. e) A bank should not put in excess of 25% of its capital in risk by purchasing derivatives. 5. Who do you blame for the collapse of the Barings bank (SIMEX, Mr. Leeson, his supervisors, the bank of England)? Why? 6. Referring to agency theory and this case, explain the risk shifting problem. 7. There are several layers of agency problems in this case. Identify at least three agency problems and discuss them. Explain the relationship, discuss which party plays the principal and agent roles and determine where the problem stems from....

Words: 250 - Pages: 1

Barings Bank

...Who Killed Barings Bank? Management Principles and Dynamics I. Statement of the Problem What control strategy is appropriate with Barings Bank situation? II. Objectives Find the right control strategy model for Barings Bank to prevent another mismanagement of the bank. III. Areas of considerations/Assumptions A. Areas of considerations a. Corporate culture b. Financial c. Decision-Making d. Leadership / management e. External/Internal environment B. Assumptions a. The Bank’s top officials gives a free-hand to Mr. Leeson to manage the affairs of their Singapore branch b. Mr. Leeson is a great manipulator. c. Top Officials of Barings Bank knows the real situation (financial) in their Singapore branch d. Mr. Leeson gives a lot of money to Baring’s Top Official. IV. Theoretical Framework Financial Control Management of Financial performance that measures the following: a. Liquidity b. Leverage c. Asset management d. Profitability Financial ratios are ratios are useful for historical comparisons within barings banking firm and for external benchmarking. Financial budgets or goals are to be shared with employees and tracked to indicate success or......

Words: 473 - Pages: 2

Collapse

...COLLAPSE ------------------------------------------------- Top of Form In today’s society in America there are groups of people who hate to see corporations make large profits while their employee’s struggle and people are homeless, starving, and without decent medical attention. Karl Marx developed conflict theory or class conflict.  Functional analysis or the idea that pieces and parts come together as a whole to make up the society is similar to conflict theory in the sense that you can say the CEO of a company’s part in society is to be in charge and run the company. The same CEO in conflict theory says that he makes too much money and is bad to society.  Conflict theory and functional analysis differ in that functional analysis is that for a society to work well, each part of the society must all work like a well-oiled machine. When one part fails, like on a car, tires specifically, you can get into car accidents and people get hurt. In conflict theory, if the CEO fails, they can be replaced, if a worker fails, they can be replaced. A third theoretical perspective called symbolic interactionism “is that symbols-things to which we attach meaning-are the key to understanding how we view and communicate with one another.” (Henslin 23) This makes the most sense to understanding society because it doesn’t put specific bias towards a position such as a CEO or an employee.  Individuals choose objects they place value in and then interact with these objects based on the......

Words: 434 - Pages: 2

The Collapse

...“The Collapse” Mark Beasley (30 March 2010) Extract: Bill Wrinkle had it all; he was the leader of one of the most powerful financial institutions in the world, he had the respect (and some might say fear) of his rivals and colleagues and he had the beautiful wife and house. Bill had come from the tough streets of New York armed only with what many competitors called “cunning street smarts” and a propensity to bully and intimidate. He was lauded by the press as a pioneer in the “new economy” expanding his company into new exotic financial products and business lines as well as moving his firm into geographic locations not entered by foreigners before. However, that was all about to change as his life’s work began to crumble and fall all around him in the autumn of 2008. His days of enormous risk-taking and swaggering bravado was about to lead him and some 50,000 employees down a precipitous path to eventual destruction. “How had it come to this?” It was an unseasonably warm evening on the 5th of September 2008 when the lights of Bill Wrinkle’s midnight blue Mercedes lit up the forecourt of his expansive Greenwich, Connecticut home. Of all the palatial mansions that lined the treehugged streets of this part of the world, Bills was by far the most spectacular – a 12 bedroom oasis with tennis court, indoor squash court (which the talented player used almost daily), a 50metre infinity pool, and, enough land to host some of the more grander social gatherings of New......

Words: 4999 - Pages: 20

Report on Barings Collapse

...on Case Analysis: “The Barings collapse: breakdowns in organizational culture and management” Prepared by: Valeriya Yun ID: 201005032 SolBridge International School of Business, 2012 Introduction How it is possible that one person became an important reason for the world-known financial institution collapse? But it is, and this guy is Nick Leeson who brought the Barings bank to bankruptcy with losses of $1.4 billion, even though here he played an antihero role we cannot deny his talent. This paper provides an analysis of the case, introduction of the whole picture depicted in the case, Nick Leeson activities and operations, and of course assessment of internal control and some other problems in their structure which also influenced the bank collapse. An analysis is followed by conclusion and final recommendations. Barings Bank overview Barings Bank was founded in 1762 and in the beginning of the 1980s still had a reputation as one of the oldest in England and world’s most pre-eminent financial institutions. During their long history they have already been on the edge but that time they were saved by the Bank of England. But in 1995 as a result of Nick Leeson activities, the Barings Bank collapsed. In 1980s there was a vogue to buy or acquire stockbroking and jobbing firms and Barings Bank followed the tendency and bought Henderson Crosthwaite and built up the significant business BSL which had an operational independence of Barings Brothers & Co. Nick......

Words: 1456 - Pages: 6

Barings Bank

...1. What was the case about? (Summary of the Case) The case was about how one man single-handedly brought down one of the world’s most historic banks. The man was Nick Leeson and it happened from 1992 to 1995. He did it while holding the position of general manager to Barings Securities in Singapore. As general manager he oversaw both trading and back office needs, something uncommon in the industry due to the fact that it eliminated necessary checks and balances that would prevent such fraud from occurring. He had authority to deal in futures and options order for clients or other firms within Barings and arbitraging price differences between Nikkei futures traded on the SIMEX and Osaka exchange, it was a low risk strategy meant to make small profits. Where Leeson went astray was when he began unauthorized speculation in futures on Nikkei 225 stock index and Japanese government bonds. These trades where highly risky due to the fact that they involved a highly leveraged strategy and depended solely on the markets movement upwards. This strategy is a double edged sword because even though it provided devastating results for Leeson it could of also provided incredible gains if the market would have gone up. Leeson essentially bet that the Nikkei was going to rise. Once the loses started coming in Leeson opened up a secret trading account, account 88888. The account was initially set up to cover a mistake done by one Leeson’s traders in which she mistakenly submitted a......

Words: 1291 - Pages: 6